Month End Glossary

Perpetual Inventory System

A perpetual inventory system is a method of accounting for inventory that updates records of inventory quantities in real-time as transactions occur. This system ensures that inventory levels are always current, reflecting the latest purchases, sales, and stocking updates.

The perpetual inventory system is a system used to manage and record inventory continuously throughout the operational lifecycle. In this system, the inventory counts are updated in real-time after every incoming purchase or outgoing sale, integrating with point-of-sale systems, purchase logs, and distribution records. For example, when a business sells an item, the inventory count for that item automatically decreases in the system, and when new stock is received, the inventory records are updated accordingly.

This system offers several advantages over traditional periodic inventory systems, such as providing up-to-date inventory data at all times and reducing the need for physical inventory checks. It is especially useful for businesses with high-volume inventories or those dependent on accurate and immediate inventory tracking, such as retail sectors.

"For instance, a retail store using a perpetual inventory system would immediately see the reduced stock of a product in their system after a sale, enabling accurate inventory and prompt restocking decisions."

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