Perpetual Inventory - Explained
What is Perpetual Inventory?
Written by Jason Gordon
Updated at April 7th, 2022
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What is Perpetual Inventory?
Perpetual inventory refers to a technique of accounting that records inventory purchases or sales immediately via the use of enterprise asset management software and computerized point-of-sale (POS) systems. The perpetual inventory provides an intricate view of changes in inventory with instant reporting of the inventory amount in stock.
A perpetual inventory doesn't require manual adjustment by the company's accountants, except to the point it differs from the physical inventory count as a result of breakage, theft, or loss. A POS system causes changes in inventory levels when inventory is reduced, and the cost of sales, an expense account, is increased anytime a sale is made.
Using a constant inventory system simplifies the use of economic order quantity (EOQ) by a company to buy inventory. EOQ is a formula used by managers to determine when to buy inventory. It considers the cost of ordering and holding inventory.
Related Topics
- What is Merchandising? – Financial Accounting
- Recognizing Inventory Sales – Financial Accounting
- Perpetual vs Period Systems – Financial Accounting
- Special Merchandising Transactions – Financial Accounting
- Adjustments for Inventory – Financial Accounting
- Multi-Step Income Statement – Financial Accounting
- Accounting Cycle for Merchandising Business Example Part 1
- Accounting Cycle for Merchandising Business Example Part 2
- Accounting Cycle for Merchandising Business Example Part 3
