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What is Perpetual Inventory?

Mary McMahon
Updated May 16, 2024
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Perpetual inventory is a method of maintaining inventory records that relies on updating those records in real time. As a result, the information is always current, providing an accurate reflection of goods currently on hand. This contrasts with other systems that rely on periodically counting inventory to determine the total amount of goods in inventory. The perpetual inventory method is extremely popular in retail environments where real time information about inventory status is valuable for maintaining adequate stocks of top selling items.

In a business that uses perpetual inventory, whenever goods are received, they are immediately entered into inventory. A shipping and receiving department opens incoming items, scans them into inventory, and confirms that the orders are accurate. If discrepancies, such as items on the bill that are not in the box, are discovered, they are noted so a dispute can be filed with the company that fulfilled the order.

When goods are sold out of inventory, they are immediately deducted from the inventory record to show that they are not on hand anymore. Many perpetual inventory records are designed to mesh with a point of sale system. This allows counts in the inventory record to be adjusted automatically at the time of a sale.

The advent of computerized inventorying systems in the 1970s made the perpetual inventory a realistic method of tracking inventory. Many systems generate statistics, allowing people to see how long items remain in inventory, to track items that are selling quickly, and to examine other data that can be important for making ordering decisions. It is also possible to set up recurring orders or automatic triggers, such as an order that will be sent out automatically when stock of a popular item drops below a certain amount.

Discrepancies can develop between the records in the perpetual inventory and the actual items on the shelf. Inventory can be lost, stolen, or damaged, and clerks can make mistakes when scanning items into inventory or selling items. Businesses that use this method usually plan to set aside an inventory day every few years to close the store and go through the entire inventory to align it with the records. Businesses with high loss rates due to theft may perform a manual inventory more often to keep their records as current as possible. Adjustments made to inventory can also be used to generate statistics; a program may show, for example, that an item is stolen more often than it is sold.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By Bhutan — On Jul 12, 2011

@Latte31 - Wow, I never thought of that. I see cashiers doing that all of the time too. I think that the same thing can happen when a customer gives the cashier coupons that don't match the order.

I was in line the other day, and the cashier was applying all sorts of coupons to an order that kept beeping. I assume that the customer did not buy the product on the coupon because the vendor would only reimburse the store if the actual item was purchased which was why the machine was alerting the cashier.

So I think that there could be problems with the reimbursement of the coupon for the store because it did not reflect the sales and inventory levels.

By latte31 — On Jul 11, 2011

I used to work in a grocery store as a cashier when I was in college, and we were always instructed to ring each flavor of an item up regardless if it was the same price because if not it will negatively affect our inventory because the store used a perpetual inventory system.

For example, if a customer was buying three V8 juices that were mango and orange, strawberry and banana, and strawberry and kiwi, I would have to scan all three juices individually even though the juices were all the same price.

I now cringe when I go to a grocery store and buy assorted yogurts for example, and the cashier counts them and scans one yogurt. Under a perpetual inventory system the item that was scanned would have an inflated inventory reorder and when the product hit the store it probably would not sell because the inventory was wrong in the first place. This really makes a mess out of the perpetual inventory management system.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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