What are perpetual inventories?

Companies have a wide variety of options for taking inventory and among the different types are perpetual inventories. Perpetual inventory is an accounting method which records the purchase and sale of inventory through the use of technological and computerized point of sale systems. The perpetual method will allows you to periodically update your records inventory to help prevent situations like running out of stock.

You can easily record, view and access changes to your inventory. You will get accurate and continuous results if you properly manage your perpetual inventory by updating it on a regular basis.

Difference of perpetual and periodic inventory

Yes OK perpetual inventory system allows immediate tracking inventory and sales levels. Under the periodic system, an occasional physical count is performed, usually at the end of the period, to measure the level of inventory and the cost of goods sold.

Some other differences between the two systems are:

• Purchasing account: it is only used in the inventory system not perpetual but periodic. In perpetuity, purchase returns are credited to the inventory account and purchases are charged directly to it.
• Cost of goods sold- Under the periodic inventory system, the cost of goods sold is calculated in a lump sum at the end of the reporting period, adding the purchases totals to the beginning inventory and subtracting the ending inventory, while the perpetual system allows continuous updates of the cost of goods sold. count on every sale.
• Sales transactions: only one entry is made in the periodic inventory system where the cost of the goods that were sold is recorded. In contrast, in perpetuity, the selling value of the inventory is backed up.
• Closing entries: They are only required to update the price of the goods that have been sold in the periodic inventory. In perpetual, no closing entry is needed for the inventory account.
• Tracking errors- If you use the periodic inventory system, it is difficult to trace the accounting records for an inventory-related error as the information is aggregated at a very high level. On the other hand, the detailed transaction log facilitates investigations in a perpetual inventory system.

The perpetual inventory system provides information about a business from scratch. It can help you run a more efficient warehouse and provide essential information for other business functions.

The only reason companies use the periodic inventory system is when dealing with large volumes of low-value products or when the amount of inventory is so small that a visual review is enough.

Start-ups that cannot afford the cost of technology and training can also turn to the periodic inventory system.

How does the perpetual inventory system work?

When using perpetual inventory, POS system automatically makes changes to inventory levels. Inventory reports can be accessed online at any time, making it easy to manage or purchase inventory.

However, perpetual inventory systems are not quite correct all the time. There are many factors that can affect the accuracy of your company's inventory levels. You may forget to record a transaction or experience theft from an employee at your business. Be sure to occasionally check the actual quantities in your inventory to compare the totals.

Calculations for perpetual inventory they are usually done on the fly rather than waiting until the end of the accounting period, as with the periodic inventory. Businesses that use point-of-sale systems and sell high-value items (for example, auto dealerships) often use perpetual inventory systems to count inventory with frequency.

How are they calculated?

Companies that use the perpetual inventory system use cycle counting to maintain the accuracy of the records. This process counts a portion of the inventory every day and compares the quantity against the inventory records.

To calculate inventory, you must set up a system in which every piece of inventory is entered into the system or deducted from it as it is bought or sold.

The system works best when sales clerks and staff use point of sale terminals, barcode scanners Wireless and perpetual inventory software to update inventory quantities in the company's central accounting database. business.

Advantage

As a small business owner, keeping track of inventory is an essential part of running your business. Perpetual inventory is a solution for inventory accounting.

If your business revolves around managing continuous inventory, using the perpetual inventory method offers many advantages. Some of them are:

• Accurate financial information- The perpetual inventory system provides the updated cost of goods sold. This gives stakeholders a clear picture of profitability throughout the year.
• Discover thefts, discrepancies and losses- The perpetual inventory system allows you to identify when stocks are running low and provides accurate information on inventory value and production costs. These allow you to investigate theft, discrepancies, shrinkage, and even to immediately count errors and adjust records accordingly.
• Provides stock value- With up-to-date reports on the value of stock and the cost of the product sold, the perpetual inventory management system prevents the backlog of slow-moving products. Gives business owners a more accurate picture of customer preferences.
• Inventory management- It can be difficult for small businesses to keep good track of stocks. In perpetual inventory systems, changes in inventory quantities are recorded in real time. This helps owners run reports that can immediately identify out-of-stock or near-out-of-stock products and prevent out of stock.