Perpetual inventory system
In one sentenceA system in which the inventory balance and the cost of sales are updated immediately with every purchase or sale, and reconciled with a physical count periodically.
Simply put
In the perpetual system every purchase invoice increases the balance and every sales invoice reduces it, so you know at any moment how much you hold of each item and what the goods you sold cost you.
Its main advantage is that the physical count becomes a test: the difference between the system balance and the count reveals a shortage or an error, instead of disappearing into the cost of sales.
Worked example
A spare parts store has 100 filters in the system at a cost of 25 SAR per filter, sold 30 of them, then counted the shelf and found 68.
System balance after the sale100 − 30 = 70 filters
Physical count68 filters
Cost per filter25 SAR
Shortage = (70 − 68) × 2550 SAR
Don't confuse it with
Periodic inventory systemIn the periodic system the 50 SAR does not show up as a shortage; it is absorbed into the cost of sales without you noticing.
in FullScreen ERP
Warehouses and items shows each item's balance in every warehouse in real time, with full or partial stocktakes and automatic adjustment entries. Warehouses and items