Perpetual inventory management system

Perpetual Inventory is a method for tracking and knowing the value of inventory and quantity of merchandise on hand at any time by tracking sales, returns and receipts with information systems.

A perpetual inventory system is a continuous record of unit quantity/valuation increases and decreases to a particular line item of merchandise in the inventory. A periodic inventory system only uses physical verification/valuation of inventory at predetermined intervals, but no less frequently than annually.

Key features:-

  • Requires more record keeping than periodic inventory management system.
  • Records are kept of the quantity and, usually, the cost of individual items as they are bought or sold.
  • This system provides useful information for management purposes.
  • The cost of each item is recorded in the Merchandise Inventory account when purchased.
  • As merchandise is sold, its cost is transferred from Merchandise Inventory account to the Cost of Goods Sold account.
  • The balance of the Merchandise Inventory account equals the cost of goods on hand.
  • The balance of the Cost of Goods Sold account equals the cost of the merchandise sold to customers.
  • The Purchases account is not used.
  • Due to the widespread use of computers, the distinction between which inventory system is most appropriate is blurred.