Characteristics of Perpetual inventory

Characteristics of Perpetual inventory

Characteristics of perpetual inventory system may be explained in term of movement recording, automatic updating of inventory. These characteristics have been briefly described below;

Important Characteristics of perpetual inventory system

Some important characteristics of perpetual inventory system have been discussed below;

1.   Inventory Account

Inventory account is used instead of purchase account for recording the purchases. However, some organization also use purchases account, but these purchases are transferred to stock. Thus the scheme of entries would be as under

First Method

In this method only one entry is recorded in inventory account. Inventory is debited, while cash or payable is credited.

Date	Particular	Folio	Dr.	Cr.
21.08.2016	Inventory		50,000
21.08.2016	Cash			50,000

Second Method

In this method inventory purchases is first recorded in purchase account and then transferred to inventory account. The journal entries would be as follow

Date	Particular	Folio	Dr.	Cr.
21.08.2016	Purchases		70,000
21.08.2016	Cash			70,000

Date	Particular	Folio	Dr.	Cr.
21.08.2016	Inventory		70,000
21.08.2016	Purchases			70,000

2.   Inventory Movement Recording

All movement in stock shall are recorded in the stock account i.e. sales, purchase, normal loss. Any inward movement of inventory will be debited to inventory account, while outward movement of inventory is credited to inventory account.

3.   Stock Account updated

Stock account is updated with each transaction. Thus at any point of time, the inventory account shows the position of stock at hand. In periodical inventory system we need to count the stock for inventory status.

4.   Counting for Control purposes

In perpetual inventory accounting system, the stock is counted at the end of the year only for the control purposes. Thus counting of closing inventory is primarily is done for reconciling the record with physical status.

5.   Trial balance Appearance

In perpetual inventory accounting system, the trial balance discloses the cost of sales and closing stock figure. There are no mentioning of purchases and opening stock.

Characteristics List of Perpetual inventory System

1.    Inventory account is maintained.

2.    Inventory account is updated with each inventory related transaction.

3.    Physical counting is not required for updated status of inventory.