Perpetual inventory
Encyclopedia
In business
and accounting/accountancy
, perpetual inventory or continuous inventory describes systems of inventory
where information on inventory quantity and availability is updated on a continuous 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 1970's 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) 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.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
and accounting/accountancy
Accountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
, perpetual inventory or continuous inventory describes systems of inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
where information on inventory quantity and availability is updated on a continuous 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
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....
systems were more prevalent. Starting in the 1970's 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) 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
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 actually available. This could be due to the items being moved without recording the change in the inventory accounting system, breakage, theft, data...
) 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.
External links
- http://www.investorwords.com/3679/perpetual_inventory.html
- http://retailindustry.about.com/od/merchandisemanagement/g/perpetual_inv.htm
- http://www.business-accounting-guides.com/perpetual-inventory-system.html