![]() You can view the transcript for “Perpetual vs Periodic Inventory System (Financial Accounting Tutorial #29)” here (opens in new window). This method makes more precise inventory counts available to a business at all times. Then they compare this physical count with the records showing the units that should be on hand.īefore you dive into the nuances of the perpetual system, here’s a quick summary of the differences between the two methods of tracking inventory and computing COGS: Perpetual inventory is an accounting method in which a business continuously tracks its inventory levels in real-time. Let's assume that a customer purchases 57 of. Company personnel also take an occasional physical inventory by actually counting the units of inventory on hand. In a perpetual system, two journal entries are required when a business makes a sale: one to record the sale and one to record the cost of the sale. That can occur thousands of times each day. Firms also maintain detailed unit records showing the quantities of each good type that should be on hand. In a perpetual system, each time a sale is made the cost flow assumption identifies the cost to be reclassified to cost of goods sold. ![]() Companies debit the Merchandise Inventory account for each purchase and credit it for each sale so the current balance is shown in the account at all times. A perpetual inventory system tracks inventory in real time, recording the cost of goods sold when the sale happens. It has become more popular with the increasing use of computers and perpetual inventory management software. Under perpetual inventory procedure, the Merchandise Inventory account provides close control by showing the cost of the goods that are supposed to be on hand at any particular time. The perpetual inventory method is a method of accounting for inventory that records the movement of inventory on a continuous (as opposed to periodic) basis. Computerization makes it economical for retail stores to use perpetual inventory procedure even for goods of low unit value, like groceries. Today, computerized cash registers, scanners, and accounting software programs automatically keep track of inflows and outflows of each inventory item. In the past, because of the amount of paperwork involved, only companies that sold merchandise with a high individual unit value, like cars, furniture, and appliances, used perpetual inventory procedure. It does this using supply chain management software and digital input devices such as point-of-sale (PoS) systems and barcode/RFID scanners. What you will learn to do: Accounting for inventory under the perpetual method A perpetual inventory system is an accounting and inventory management method that continuously tracks and records inventory changes (with every transaction). ![]()
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