business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...

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 "langua ...

, 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 sha ...

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 would be exactly the same as, or almost the same, as the real inventory. In earlier periods, non-continuous, or periodic inventory 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) or understatements ( missing inventory) 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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