The perpetual inventory system is also known as what type of review system?

In business and accounting/accountancy, perpetual inventory system or continuous inventory system describes systems of inventory 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) 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.

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.

Almost all businesses need to have some type of inventory management system in place. Of course, some businesses need it more than others. Stores, warehouses, shipping companies, manufacturing facilities, and similar companies need to know exactly what they have on site at all times in order to ensure they can perform their duties.

For these types of businesses, using a perpetual inventory system is a great way to keep track of inventory, ordering, and other related tasks. There are quite a few different options when it comes to this type of inventory system. Learning more about how this type of system works can help management discover which is best for their environment.

What Is a Perpetual Inventory System?

Perpetual inventory systems, also known as continuous inventory systems, are systems where the information about the inventory in a facility is updated in near-real time. As an item is bought or used, it will be removed from the inventory system. As new items are brought in, the system will be updated to reflect this as well.

The concepts behind this kind of inventory system are very simple. Implementing them can be more of a challenge, but even that has become easier thanks to advancements in technology over the years.

Using a Perpetual Inventory System

There are many ways that a perpetual system for inventory can be used. Technically, this type of inventory management could be handled using just paper and a pencil. This would only really be feasible on a very small shop, but it could be done by simply writing down everything as it comes and goes.

Most companies will use automated computer systems to run a perpetual inventory system. Advanced systems can scan barcodes or RFiD tags as they come in or out of a facility, and immediately update the inventory system. The software can also incorporate a connection with a cash register, and automatically update the inventory system as people make purchases.

Benefits of a Continuous Inventory System

Continuous inventory systems are quite popular, but they may not be right for every environment. Learning about the different benefits of this type of inventory management is a great way for companies to determine whether it is worth the effort or not. The following are some of the biggest benefits of implementing a perpetual inventory system:

• Precise Restocking - When a company knows exactly when something comes in and out of their system, it is easy to manage restocking. Companies can use these systems to trigger reordering at the right time to ensure they always have what they need.
• Sales Tracking - A perpetual inventory system makes it easy to track sales trends. This can help to make effective adjustments to pricing, advertising, and other important aspects of running a business.
• Minimize Risk of Theft - Companies that know exactly how much of each item they have in the system can respond to theft much more quickly and effectively. This applies both to theft from customers, and theft from employees. Knowing what types of items are being stolen can also help to make a loss prevention team more effective than would otherwise be possible.
• Accurate Financials - Accurate inventory means it is possible to track the financials of a company much more precisely. This can help with reporting, tax issues, and other essential aspects of running a successful company.
• Easier Regulatory Compliance - In many industries it will be necessary to know exactly what is being kept on site at what times. Companies that have hazardous materials on site need to know exactly how much they have at any given time to comply with OSHA and other standards. This type of inventory system can help to make that much easier.

Another benefit to this type of inventory tracking systems is that they can track inventory as it moves through different areas of a company. This can apply even to inventory that goes across multiple locations, even if they are quite some distance away. UPS and other shipping companies often use these types of systems to ensure they always know what they have, and where it is located.

Implementing a Perpetual Stock System

A company that has decided that they want to implement a perpetual stock system will need to do some research to discover what method is right for them. Some systems can be started very quickly and cost little money, but they will often lack a lot of the automation tools that make it easier to maintain. Other systems may have high up-front costs, but can run smoothly for years with minimal interaction after that.

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There are many factors that a company has to think about when putting a continuous stock system in place. One major thing to think about is what type of company it is. Medical environments like hospitals and doctor's offices will often need a different type of system than a grocery store.

Long Term Inventory Management

Once an inventory management system like this is in place, companies need to make sure that it is kept up to date to avoid problems. The long-term maintenance of an inventory system are typically going to be quite minimal.

Anytime new types of inventory are needed, they will need to be added in to the system. In many cases, this can be done automatically based on scanning it into the system. Other times it may need to be manually added. In either case, keeping the system up to date is necessary or the system itself will become useless for accurately tracking the system.

Most perpetual inventory systems rely on computer equipment, which also must be kept in good working order. The software behind the system will need to be kept up to date as well. In most cases, this is a simple update, but it is something companies need to keep in mind since it will often result in some downtime. Depending on how rapidly products are coming in and out of a facility, any downtime could cause problems. Planning for these types of things would be necessary to keep inventory levels accurate.

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