Perpetual Inventory System

Perpetual inventory system is that system of inventory management in which issue, receiving and balance of material can easily be known, recorded  and checked. With the use of barcode scanner and other inventory management software, it can easily be possible. For example, you go big bazaar or More shopping mall. Every items which they sell scanned through barcode scanner. Now, this automatically decrease the quantity of that stock item.Software will tell the exact balance quantity in the store.

Advantages of Perpetual Inventory System

 1. With this system of inventory management, we need not to verify the closing stock at the end of period. Because after every transaction, inventory management software will show the closing stock.

 2. There is less chance of any fraud because employees will do their duty honesty because they know everything is recorded. So, they can be responsible of fraud. So, they will not take anything without any permission.

 3. It is very easy to fix the maximum level, minimum level and re-order level and danger level of inventory in this system.

Perpetual Inventory System Vs Periodic Inventory System 

Periodic Inventory System is used when there was not any computer technology. Accountant passed the entry of purchase, purchase return, sale and sale return. In the end of year, stock is calculated by physical counting and it was credited to the trading account.

Now, time is changed. Now, you just pass the voucher entry of purchase, purchase return, sale and sale return in any accounting software, it will tell you what is the amount of your closing stock with in one second because all these accounting software follow the perpetual inventory system. We can use also perpetual inventory system manually. For this, we have to show inventory account as debit instead of purchase account in the entry of purchase. Inventory account will be credited in the entry of purchase return. In the entry of sale, we will pass the same entry as in periodic inventory system ( debtor account Dr. and sale account credit) But we have to pass one more entry. Cost of goods sold account debit and inventory account credit. In sale return, we will pass following entry

Sale return account Dr

Debtor account Cr


Inventory account Dr.

Cost of Goods Sold Cr.

Every time calculating the balance of inventory account will tell us the closing balance of stock. This will be same as physical counting because above entries are passed with following formula

Closing stock 

= Beginning inventory + Purchases during the period - Cost of goods sold

Related : EOQ


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Accounting Education: Perpetual Inventory System
Perpetual Inventory System
Accounting Education
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