Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a physical count of the inventory.

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Under a periodic inventory system, the inventory is not updated after each sale or purchase transaction. Instead, the inventory balance is determined by physically counting the merchandise on hand at the end of the accounting period (usually at year-end) to arrive at the ending inventory balance. This is in contrast to the perpetual inventory system, where the inventory balance is continuously updated with each sale and purchase transaction.

Under a Periodic Inventory System, the Merchandise on Hand at the End