Perpetual Inventory System

In a perpetual inventory system, companies keep detailed records of the cost of each inventory purchase and sale. These records continuously—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.

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