Perpetual Inventory System: Example, Advantages and Disadvantages

Through perpetual inventory system; the purchased value of each merchandise and retail sales information is recorded.

In this system, the quantity of inventory of every item of merchandise can be known every day.

The business organizations which trade the merchandise of high quality and of limited types generally maintain accounts of merchandise transactions under a perpetual inventory system.

Recently with the help of the computer and electronic scanner, many more business organizations are maintaining accounts of merchandise inventory under this system.

The perpetual inventory system is named so because; from this system daily quantity of merchandise, inventory can be known at any time.

It is easier and more convenient to keep control over merchandise stock through perpetual inventory system than periodical inventory system. The quantity of inventory stock needed can easily be known from inventory record.

The equivalence of Stock of merchandise in hand and merchandise recorded in inventory record can easily be verified by a physical count. If any discrepancy is detected, corrective measures can be taken in proper time finding out its causes.

Keeping accounts of inventory under this system needs additional accounts assistant(s) and increases accounting expenses.

Perpetual Inventory System Example, Advantages and Disadvantages

But this type of expenditure can be controlled and minimized to a great extent using a computer.

Advantages of Perpetual Inventory System

  1. As merchandise stock is restricted to a certain limit the additional investment of capital is not required,
  2. This is a complete and dependable verifying method over the store.
  3. Closure of normal business activities is not required during the physical counting of merchandise inventory.
  4. Preparation of financial statements is not delayed for the amount of merchandise stock because the quantity and value of merchandise stock are readily available under perpetual inventory.
  5. Cost of goods sold or cost of production can easily be known,
  6. Keeping accounts under this system helps timely detection of theft and misuse of goods and necessary steps can be taken.
  7. The stock of merchandise can be known anytime.
  8. Proper control over stored merchandise is possible.
  9. An experienced person is engaged for proper maintaining of accounts under this system.

Disadvantages of Perpetual Inventory System

Keeping accounts of stock under the perpetual system in the organization dealing with the verities of goods is expensive and time-consuming.

But nowadays using computer and electronics scanner almost all business organizations follow this method.

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