Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software. Perpetual inventory provides a highly detailed view of changes in inventory with immediate reporting of the amount of inventory in stock, and accurately reflects the level of goods on hand.
Some of the advantages of perpetual inventory control are:
- Quick valuation of closing stock:
On account of continuous stock taking, the value of closing stock can be known at any time during the year.It greatly facilitates the preparation of profit and loss account and balance sheet at the end of the financial period.
- Lesser investment in materials:
By introducing a system of perpetual inventory control, a regular check on the receipt and issue of materials and stores is undertaken. This considerably reduces the investment in materials and storages expenses are also minimised.
- Helpful in formulating proper purchase policies:
A storekeeper can easily know the time when the quantity of materials will be required by each department of the factory (as various levels of each type of material are clearly determined). All this information is very useful in formulating proper purchase policies.
- Immediate detection of theft and leakages etc:
With the help of a properly planned system of perpetual inventory control, wastages, leakages and thefts of materials are at once brought to light and causes for such discrepencies can be known without delay,
- Adequacy of working capital:
The system ensures an effective control over the storing, issuing and using of materials. This leads to avoidance of unnecessary locking up of capital in stock. This makes available adequate supply of working capital which can be applied in other profitable spheres of the concern.
- Beneficial in ascertaining efficiency of stores organization:
Perpetual inventory control system acts as an important instrument to ascertain efficiency and working of stores in a production undertaking as it ensures continuous check on the working and operations of stores. Besides the above mentioned advantages, a proper system of perpetual inventory control ensures many other advantages viz., ensuring timely replenishment of fresh stock (materials), stores records are maintained
up-to-date, fixing percentage of normal loss by exercising strict control over wastages and losses. Moreover, business operations need not be closed on account of yearly stock taking.