Perpetual Inventory Accounting

Perpetual Inventory Accounting

In this article we would discuss the perpetual inventory accounting or perpetual inventory system. In perpetual inventory system stock is updated regularly for each movement in stock.

In this inventory system one account is created or maintained for inventory related movement i.e. receipt and issues. All receipt of inventory is debited to stock account and all issues are credited to stock account.

Purchases & perpetual Inventory:

Date	Particulars	Dr	Cr
	Stock  A/c	30,000
	Cash A/c		30,000

 Sales & Perpetual Inventory:

In perpetual inventory system there is two entries for sales i.e. one relates to inventory account and cost of sales and another relates to sales account and receivable account. These entry have been explained below

When the inventory is sold , then on on hand Cost of sales is recorded at cost , while on other hand sales is recorded at sale price. these both entries are shown below

Cost of sales are recorded at cost.

Date	Particulars	Dr	Cr
	Cost of Sales  A/c	30,000
	Stock A/c		30,000

A sale is recorded at sale price.

Date	Particulars	Dr	Cr
	Cash  A/c	50,000
	Sales A/c		50,000

    Sales Return & Perpetual Inventory

Two entries were made at time of sales; therefore two entries would be required to accommodate sales return. Stock is to be increased (debit) and crediting cost of sales. Sales are to be reduced by debiting sales return and receivable is to be reduced by crediting receivable.

Date	Particulars	Dr	Cr
	Stock  A/c	5,000
	Cost of Sales A/c		5,000

It is to be noted that sales return are not directly debited to sales and first it is debited to sales return account and then at the end of the year , sales return are deducted from the sales.

Date	Particulars	Dr	Cr
	Sales Return  A/c	5,000
	Receivable  A/c		5,000

Normal Loss & Perpetual Inventory:

Stock account is reduced by the normal losses. This normal loss will be transferred to profit & loss account at the end of year.

Date	Particulars	Dr	Cr
	Normal Loss  A/c	15,000
	Stock  A/c		15,000

 Accounting process summarized:

a)    No need of purchase account.

b)   All movement is recorded in stock account.

c)    Inventory account is automatically updated with each transaction.

d)   Trial balance shows the closing balance and cost of sales figure.