Financial & Managerial Accounting 13th Edition by Carl Warren , James Reeve,Jonathan Duchac

Exercise 1

Control of inventories
Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.
Kevin is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Kevin has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.
Kevin is also concerned about lost sales while a physical inventory is being taken. Triple Creek Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Kevin believes that closing the store is the only way to get an accurate inventory count.
Will switching to a perpetual inventory system strengthen Triple Creek Hardware's control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.