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Under the perpetual inventory system, an entity continually updates its inventory records to account for additions to and subtractions from inventory for such activities as:
Thus, a perpetual inventory system has the advantages of both providing up-to-date inventory balance information and requiring a reduced level of physical inventory counts. However, the calculated inventory levels derived by a perpetual inventory system may gradually diverge from actual inventory levels, due to unrecorded transactions or theft, so you should periodically compare book balances to actual on-hand quantities, and adjust the book balances as necessary.
Perpetual inventory is by far the preferred method for tracking inventory, since it can yield reasonably accurate results on an ongoing basis, if properly managed. The system works best when coupled with a computer database of inventory quantities and bin locations, which is updated in real time by the warehouse staff using wireless bar code scanners, or by sales clerks using point of sale terminals. It is least effective when changes are recorded on inventory cards, since there is a significant chance that entries will not be made, will be made incorrectly, or will not be made in a timely manner.
The perpetual inventory system is a requirement for any organization planning to install a material requirements planning system.
A method of accounting for inventory that records the sale or purchase of inventory in near real-time, through the use of computerized point-of-sale and enterprise asset management systems.
Perpetual inventory provides a highly detailed view of changes in inventory and allows real-time reporting of the amount of inventory in stock, hence, accurately reflecting the level of goods on hand.
Good answers
Under perpetual inventory system, inventory and cost of goods sold are updated for each sale/purchase and return transaction.
Following are the journal entries under perpetual inventory system assuming that sales and purchases are recorded net of discount
Inventory Purchase:
Under perpetual inventory system, a purchase is recorded by debiting inventory account and crediting accounts payable assuming that the purchase is on credit. The journal entry is shown
below
Inventory— —
Accounts Payable— —
Purchase Discount:
Purchase discount will reduce the inventory directly. Thus:
Accounts Payable— —
Inventory— —
Purchase Return:
When inventory purchased is subsequently returned to the supplier, the journal entry is to debit accounts payable or accounts receivable and credit inventory account.
Accounts Receivable/Accounts Payable— —
Inventory— —
Inventory Sale:
A transaction of sale is recorded via two journal entries in perpetual inventory system. The first one records the sale value of inventory and the second one records the cost of goods sold and reduces the inventory balance. The two journal entries are shown below:
Accounts Receivable— —
Sales— —
Cost of Goods Sold— —
Inventory— —
Sales Return:
The recording of sales return also requires two journal entries. Which are shown below:
Sales Returns— —
Accounts Receivable/Accounts Payable— —
Inventory— —
Cost of Goods Sold— —
I agree with most of answers provided
perpetual inventory is near real time recording of stock movements i.e. scanning at point of sale, which in theory should prevent being out of stock on any one item unless there are errors in physic stock holding and what inventory management systems say's is there.
Inventory is material either daily, monthly or yearly
Perpetual inventory system is used in the calculation of purchases and can not figure out where the balance of the stores only by manual inventory, a final inventory of Kan's financial statements and may not modify it in any way and are therefore physically and legally Accounting
A perpetual inventory system is superior to the older periodic inventory systems because it allows for real-time tracking of sales as well as inventory levels for individual items, helping to prevent stock outs. A perpetual inventory also does not need to be adjusted manually by the company's accountants except to the extent it disagrees with the physical inventory count due to loss, breakage or theft.
Agree with Fetah Mohamed
