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