Cost AccountingFinancial Accounting

What is a Perpetual Inventory System?

In a perpetual inventory system, companies keep detailed records of the cost of each inventory purchase and sale. These records continuously or perpetually show the inventory that should be on hand for every item.

For example, a Ford dealership has separate inventory records for each automobile, truck, and van on its lot and showroom floor. Similarly, a Kroger grocery store uses bar codes and optical scanners to keep a daily running record of every box of cereal and every jar of jelly that it buys and sells.

Under a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs. Since there is the computation of stock and COGS every time new purchase or sales take place, no entry is required to be passed at the year-end.

A Perpetual Inventory System is an excellent way to keep track of all your inventory assets and make sure they are in good shape. Your inventory software will have a complete inventory of all your assets and will be able to provide you with all of the information you need on any asset. In continuous inventory, the inventory system keeps track of all your end inventory from the previous month to the current month. The continuous inventory system is essentially records keeping system, only, it doesn’t actually do a physical inventory of the inventory itself. Continuous systems that use continuous record keeping generally do a physical inventory once every six months to verify that their records are correct.

Most companies that are large also have more than one type of inventory so they might have an inventory that is for the retail store as well as a stock inventory. When a company starts to outsource its inventory to another vendor for example, the inventory may be sent to a different vendor than what was previously purchased. In order to make sure that the inventory is being handled correctly, there is always a problem report generated to the inventory department. This is where a Perpetual Inventory System comes in. An inventory problem report can be created by the continuous inventory system once the problem is found. This report will contain information on the problem and the steps taken to correct the problem.

If you own a retail store and are using a continuous inventory system, be sure you check your reports on a regular basis. You want to make sure that you have the right information in your reports and you also want to ensure that the reports reflect any changes to the inventory that were made. The system will also be able to provide you with information when it comes to ordering new equipment and if you need to order any products or services.

Your reports will also contain all the information about the inventory that is currently available for you to purchase. This will allow you to make the best possible purchase decisions for your business. By having the right information at hand, you will be able to make informed decisions as to what type of inventory your business needs and how much inventory you should have on hand. The Perpetual Inventory System will make the process of running your business easier and help you keep track of everything and make smart business decisions for your business.

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[…] a company uses a perpetual inventory system, it should take a physical count at least once a year to confirm the balance in the inventory […]

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