Perpetual Inventory
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A perpetual inventory system is based on an accounting method known as perpetual inventory, which continuously records inventory changes in real time with computerized point-of-sale systems, thereby removing the need for physical inventory checks. It provides a highly detailed view of changes in inventory with immediate reporting of the amount of inventory in stock, and it accurately reflects the level of goods on hand.Within this system, a company makes no effort to keep detailed inventory records of products on hand; instead, purchases of goods are recorded as a debit to the inventory database. A perpetual inventory system differs from a periodic inventory system, a method in which a company maintains records of its inventory by regularly scheduled physical counts.
Definition
Perpetual inventory is an accounting method that uses a computerized sales system to record inventory changes in real-time, eliminating the need for physical inventory counts. It provides a detailed view of inventory changes and immediately reports inventory balances, accurately reflecting the level of goods on hand.
Origin
The perpetual inventory method originated in the mid-20th century and became popular with the advancement of computer technology. Initially, businesses relied on manual inventory records, but with the progress of information technology, they began adopting computerized systems to enhance inventory management efficiency and accuracy.
Categories and Features
Perpetual inventory systems are mainly divided into two categories: barcode-based systems and RFID (Radio Frequency Identification) systems. Barcode systems update inventory records by scanning barcodes on products, while RFID systems use radio waves to automatically track inventory. Both improve inventory management efficiency, but RFID systems are generally more expensive.
Case Studies
Walmart is one of the early adopters of perpetual inventory systems, implementing it across its global supply chain network. By managing inventory in real-time, Walmart can reduce inventory costs and improve supply chain efficiency. Another example is Amazon, whose complex inventory management system relies on perpetual inventory to support its rapid order fulfillment capabilities.
Common Issues
Investors might be concerned about the initial cost and technical complexity of perpetual inventory systems. However, in the long run, these systems can save costs by reducing inventory losses and improving operational efficiency. A common misconception is that perpetual inventory completely eliminates the need for physical counts; in reality, periodic physical counts are still necessary to verify system accuracy.
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