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What Is Perpetual Inventory?

Perpetual inventory is a technique of inventory accounting that uses computerised point-of-sale systems and asset performance management software to record the sale or purchase of inventory immediately. The perpetual inventory gives a complete perspective of inventory changes and timely reporting of the quantity of stock on hand. It precisely reflects the number of items on hand. A corporation does not make an effort to retain precise inventory records of products on hand under this system; instead, purchases of commodities are recorded in the income statement to the inventory database. As a result, direct labour and materials costs and direct factory overhead costs are effectively included in the price of goods sold.

What is a Perpetual Inventory System?

A perpetual inventory system is an inventory management strategy that uses technology to record real-time transactions of bought or sold stock. It is generally thought to be more efficient than a periodic inventory system.

The Perpetual Inventory System: An Overview

Businesses used to utilise what's known as a periodic inventory system, in which they physically counted what was on the shelves to keep track of what was in stock. They were compelled to close storefronts or departments to perform inventory or pay staff to work overtime while the business was closed to figure out what stock was on hand in many circumstances. When products are sold out, they may only learn about them from disgruntled customers or clever floor sales employees.

Thanks to automated cash registers that maintain accounts of each item sold, many firms have recently found it simple to move to a permanent inventory system. This means that firms can operate in real-time or near to it.

Perpetual vs. Periodic Inventory

The periodic inventory system uses a physical inventory count to calculate your inventory turnover and cost of goods sold. When your accounting period comes to a close, you update your accounts. You may have a monthly, quarterly, or annual accounting period.

Your inventory balances are constantly monitored with a perpetual inventory system. When you receive or sell inventory, updates are automatically made. In addition, your inventory accounts are updated as soon as you make a purchase or accept a return.

For example, a perpetual inventory system might be employed in a supermarket. Each time an item is scanned and purchased, the technology changes inventory levels in a database.

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