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Describe how the perpetual inventory system works. What are some advantages of using the perpetual i

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Accounting

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Homework

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Queson:
Describe how the perpetual inventory system works. What are some advantages of using the perpetual
inventory system? Is it necessary to take physical inventory when using the perpetual system?
Answer:
Businesses may use two systems to maintain inventory records: perpetual and periodic. Now that computing
systems that tie inventory and sales records together are widely available, most companies use the perpetual
inventory system. For each accounting period, you need to determine the cost of goods sold, so you need to
know the beginning and ending inventory as well as the amount of purchases made during the month.
Features
The accounting terms "periodic and perpetual imply a time for determining the amount of ending
inventory,” according to Professor Thomas C. Omer at the University of Illinois at Chicago. In
periodic inventories, the accounts are determined once every accounting period, usually at the end. In
perpetual inventory, the system continually estimates the ending inventory. The perpetual system is a records
estimating system only, and not a physical check of the inventory. Systems that use perpetual record keeping
usually do a periodic physical inventory to verify their records.
Function
Perpetual inventory systems cover continuous intake of stock and up-to-date financial records. It helps you
keep constant track of incoming and outgoing materials, work-in-progress and the day-to-day sales of goods.
Check sales and stock records against each other frequently for accuracy.
Signicance
To check validity, companies should do a physical inventory count at least once a year and compare it with
the book records. This helps account for breakage, errors, theft and other loss. You compare this with the day-
to-day cost of goods sold transaction records ending the same day as the physical inventory.
Considerations
Because perpetual systems do not rely on physical inventory counts, there is no need for an end-of-year entry
to bring your accounts up to date. If the system is running correctly, any time you check your records, all your
accounts should match. If they do not, you would first check for errors in the system and then compare it with
a physical inventory to account for other mistakes or theft.

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Question:Describe how the perpetual inventory system works. What are some advantages of using the perpetual inventory system? Is it necessary to take physical inventory when using the perpetual system?Answer:Businesses may use two systems to maintain inventory records: perpetual and periodic. Now ...
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