what is a perpetual inventory system 
a perpetual inventory system is a computerized system that continuously records inventory changes in real time thereby reducing or eliminating the need for physical inventory checks relying on data provided by electronic point of sale technology it provides a highly detailed view of changes in inventory and immediate reporting on the amount of inventory in stock perpetual inventory systems differ from periodic inventory systems in which a company must instead depend on regularly scheduled physical counts 1matthew collins investopediaunderstanding perpetual inventory systemsperpetual inventory systems may be preferable to older periodic inventory systems because they allow for immediate tracking of sales and inventory levels for individual items which helps to prevent running out of stock 2 a perpetual inventory does not need to be adjusted manually by the company s accountants except to the extent that it deviates from the physical inventory count due to loss breakage or theft system software provides real time updates to inventory through the use of barcode scanners or other computerized records of product acquisition sales and returns as they occur this information is fed into a continually adjusted perpetual database the system allows for integration with other areas including finance and accounting teams this helps ensure adherence to tax and other regulations employees can use perpetual inventory data to provide more accurate customer service regarding availability of products replacement parts and other physical components because perpetual inventory systems lack the ability to account for loss breakage or theft a periodic physical inventory can still be necessary perpetual vs periodic inventory systemsthe differences between perpetual and periodic inventory systems go beyond how the two systems function although that is the main point of distinction 2perpetual inventory systems track sales constantly and immediately with computerized point of sale technology periodic inventory systems only track sales when a physical count is ordered and require a point in time count large companies or those with complex inventories are well suited to a perpetual system smaller companies with limited inventory can often survive with a periodic system the same applies to margin for error which is lower with a perpetual system although a limited uncomplicated inventory may not suffer much with a periodic system the cost of goods sold cogs is an important accounting metric derived by adding the beginning balance of inventory to the cost of inventory purchases and subtracting the cost of the ending inventory with a perpetual inventory system cogs is updated constantly instead of periodically with the alternative physical inventory overall once a perpetual inventory system is in place it takes less effort than a physical system however the startup costs for a perpetual inventory system are greater pros and cons of perpetual inventory systemsproponents of perpetual inventory systems don t always go out of their way to point out the downsides of these systems the chief of which is the lack of accounting for loss breakage or theft on the other hand detractors don t necessarily note that reported stockouts without corresponding sales can signal theft or loss and trigger a physical inventory check faster than with a periodic system when deciding how to maintain control over physical inventory it s prudent to carefully weigh both the pros and cons of any system under consideration 32