Final answer:
The perpetual inventory system constantly updates the inventory account with all transactions, while the periodic inventory system records inventory-related transactions in separate accounts and determines the cost of goods sold at the end of the accounting period.
Step-by-step explanation:
The perpetual inventory system records all inventory-related transactions in the inventory account (e.g., transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The periodic inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.
In the perpetual system, the inventory balance is continually updated with every transaction affecting inventory, while in the periodic system, inventory and cost of goods sold figures are determined at the end of the period through a physical count and the recording of adjusting entries.
Inventories are a crucial part of the economy, including both durable goods like cars and refrigerators, and nondurable goods like food and clothing. The amount of goods sitting on shelves reflects the economic conditions, generally declining if business is better than expected or increasing if it is worse.