When a physical inventory count is done, the balance in the purchases account is then shifted into the inventory account, which in turn is adjusted to match the cost of the ending inventory. Under the periodic inventory system, all purchases made between physical inventory counts are recorded in a purchases account. In the meantime, the inventory account in the accounting system continues to show the cost of the inventory that was recorded as of the last physical inventory count. Since physical inventory counts are time-consuming, few companies do them more than once a quarter or year. A periodic inventory system only updates the ending inventory balance in the general ledger when a physical inventory count is conducted.
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