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Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately on a continuous basis in which any inventory item can always be known ( number of units and values )
Its main difference from periodic inventory system is the availapility at any time to know numer of units of any inventory item and its value in contrast with periodic inventory system which doesn't have this availability
Permanent Inventory: The Corporation shall inventory its stock at each entry and exit continuously and permanently with the values and quantities in order to find out the rest of the inventory.
Periodic / Final InventoryPeriodic inventory systemAny stock inventory is done manually once at the end of the period.Uses the purchase account
It is a system of costing the inventory. While using this method of inventory, costing is updated in every intake and disposal of inventory. In other words, inventory costing is updated continuously throughout the year. Therefore there is no purchases account used in the trial balance. Any entry is directly debited or credited to the inventory account. In period account, all the purchases are recorded in the "Purchases" Account. Based on physical count, an adjusting entry has to be passed to represent inventory with the balance debited to cost of goods sold.
Perpetual inventory system is an inventory system where inventory quantity is updated on a continuous basis.
The following are the main differences
Inventory Account and Cost of Goods Sold Account are used in both systems but they are updated continuously during the period in perpetual inventory system whereas in periodic inventory system they are updated only at the end of the period.
Purchases Account and Purchase Returns and Allowances Account are only used in periodic inventory system and are updated continuously. In perpetual inventory system purchases are directly debited to inventory account and purchase returns are directly credited to inventory account
Sale Transaction is recorded via two journal entries in perpetual system. One of them records the sale value of inventory whereas the other records cost of goods sold. In periodic inventory system, only one entry is made.
Closing Entries are only required in periodic inventory system to update inventory and cost of goods sold. Perpetual inventory system does not require closing entries for inventory account.
Perpetual inventory System means physically Stock verify. ( Cycle counting ) Last closing Stock - outward register Qty. = Physical stock in store . Variance control (Physical vs. System) & Ageing analysis & control of material. Fast Moving , Slow moving & Non moving Material category wise create MIS report.
There are several types of inventories: permanent inventory, annual inventory and turning inventory. Their objective is to check the stock against the theoretical stock.
