business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...

and

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

accountancy Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...

, perpetual inventory system or continuous inventory system describes systems of

inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the shap ...

where information on inventory quantity and availability is updated on a continuous/real-time basis as a function of doing business. Generally this is accomplished by connecting the inventory system with order entry and in retail the point of sale system. In this case,

book inventory A book is a medium for recording information in the form of writing or images, typically composed of many pages (made of papyrus, parchment, vellum, or paper) bound together and protected by a cover. The technical term for this physical arr ...

would be exactly the same as, or almost the same, as the real inventory. In earlier periods, non-continuous, or

periodic inventory Periodic inventory is a system of inventory in which updates are made on a periodic basis. This differs from perpetual inventory systems, where updates are made as seen fit. In a periodic inventory system no effort is made to keep up-to-date recor ...

systems were more prevalent. Starting in the 1970s digital computers made possible the ability to implement a perpetual inventory system. This has been facilitated by bar coding and lately radio frequency identification (

RFID Radio-frequency identification (RFID) uses electromagnetic fields to automatically identify and track tags attached to objects. An RFID system consists of a tiny radio transponder, a radio receiver and transmitter. When triggered by an electromag ...

) labeling which allows computer systems to quickly read and process inventory information as part of transaction processing. Perpetual inventory systems can still be vulnerable to errors due to overstatements (

phantom inventory Phantom inventory is a common expression for goods that an inventory accounting system considers to be on-hand at a storage location but are not available.A Comprehensive Guide to Retail Out-of-Stock Reduction in the Fast-Moving Consumer Goods Indus ...

) or understatements (

missing inventory Missing or The Missing may refer to: Film * ''Missing'' (1918 film), an American silent drama directed by James Young * ''Missing'' (1982 film), an American historical drama directed by Costa-Gavras * ''Missing'' (2007 film) (''Vermist''), a Bel ...

) that can occur as a result of theft, breakage, scanning errors or untracked inventory movements, leading to systematic errors in replenishment.A Comprehensive Guide to Retail Out-of-Stock Reduction in the Fast-Moving Consumer Goods Industry, Thomas W. Gruen, Ph.D., University of Colorado at Colorado Springs, USA and Dr. Daniel Corsten, IE Business School Madrid. The perpetual inventory formula is very straightforward. Beginning Inventory (usually from a physical count) + receipts - shipments = Ending Inventory. Some accountants will add or subtract a value using an adjustment entry (journal voucher), however if all receipts (purchases) and shipments (invoices) are captured as transactions, this would never need to occur.

References

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External links

*http://www.investorwords.com/3679/perpetual_inventory.html *https://web.archive.org/web/20070221091441/http://retailindustry.about.com/od/merchandisemanagement/g/perpetual_inv.htm *http://www.business-accounting-guides.com/perpetual-inventory-system.html *http://www.accountingformanagement.org/perpetual-inventory-system/
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