Perpetual Inventory

In accountancy or accounting and business, the continuous inventory or perpetual inventory defines systems of inventory where the data on inventory availability and quantity is updated on constant basis as the functions of running business. Usually this is done by connecting the inventory method with the order entity and in retail the point of sale system. In this scenario, the book inventory will be almost the same or exactly same as the real inventory.

In earlier periodic inventory or non continuous systems were more common or prevalent. After the introductions of the digital computers since 1970’s, it has made possible to use the continuous inventory system. This has be supported by the radio frequency identification and bar coding labeling that enables the computer to quickly process and read inventory data as part of the transaction processing.

The continuous inventory system could still be vulnerable to errors because of the missing inventory (understatements) or phantom inventory (overstatements) which could occur due to theft, untracked inventory movements or scanning errors, breakage, leading to systematic errors in replenishment.  

Difference has to be made here between the perpetual inventory system and the periodic inventory system.  In the periodic inventory method, the inventory will be computed once in a year or once in six months or once in a month. Periodic means that the inventory will not be constantly on watch, however instead it would be assessed periodically, the time or period being preplanned by the business organization. Continuous inventory system is perpetually or continually being assessed. The main reason is that the treat of several transactions of sales and purchases directly affects the inventory in the accounting bookkeeping. 

Questionnaire:

• What is Perpetual Inventory System?
• What are problems could occur in continuous inventory system?