November 11, 2021

How Perpetual Inventory System Works: Pros & Cons

Inventory management is a challenge for any eCommerce business. It's easy to get overwhelmed by the sheer volume of products you need to track, and it can feel impossible to keep up with everything. This guide will walk you through all the steps needed to set up a perpetual inventory system that will work for your company. Keep reading if you want this process painless!

What Is A Perpetual Inventory System?

A perpetual inventory system is an inventory management technique. At the same time, the stock is offered or obtained in actual time via a stock management device that automates the manner. A perpetual stock system will report changes in inventory at the time of the transaction.

Perpetual inventory systems work by tracking inventory at once through your point of sale software and stock control software program. Leveraging matters with barcode scanners and transaction statistics, the gadget mechanically tracks inventory and devices as they're acquired in the warehouse or sold. You could nonetheless preserve inventory counts, however best to account for capacity damages to stock or robbery, not to tune your whole stock device.

Advantages And Disadvantages Of Perpetual Inventory System

Perpetual inventory structures are common in many modern corporations. They're usually located in big corporations, businesses with a couple of locations, or groups that deliver pricey products, including a jeweler or electronics shop. Even as inventory mistakes arise due to loss, breakage, theft, flawed inventory monitoring, or scanning errors, there are many advantages to the usage of a perpetual inventory system:

Advantages Of Perpetual Inventory System

Smooth Operation

A perpetual inventory system allows a vast agency that operates at multiple places to perform efficiently. In the absence of a perpetual inventory system, it becomes tough to tune the stock stages of all the shops at different places. However, with an actual-time inventory count of all the locations for your display screen, it becomes very smooth for the necessary facility to discover the fundamental requirement of the chain and the vicinity of an order for it.

Customer Buying Patterns Deciphered 

A perpetual inventory system permits you to understand the buying patterns of clients. For example, the fact that the stock system is continuously updated, primarily based on this know-how, the business can then design its delivery chain around the shopping behavior of its clients.

Reduces delay of Financial Statements

The value of the stock is a component of the financial statements. A perpetual stock system avoids the delay of financial statements because the number of the stock is simply available. So, this device avoids the lengthy and high-priced procedure of bodily counting the stock levels.

Disadvantages Of Perpetual Inventory System

Perpetual stock systems are high-priced. The modern technology necessary for the device (barcodes, scanner, computer software program, and many others) to operate can be costly. Updating the prevailing gadget to deal with the brand new one also can upload to the charges. Training the personnel or adding new ones to work at the device are some other prices. As a result, for a small firm with low margins, this system is not recommended.

How a Perpetual Inventory System Works?

While you operate perpetual inventory, the POS system automatically makes modifications to your inventory tiers. You may access your inventory reports online every time, making it easier to control or buy stock. But, perpetual stock systems are not correct all of the time. Some factors may affect the accuracy of your commercial enterprise's inventory ranges.

Your business can select from several techniques to account for perpetual inventory held to your perpetual system.

Perpetual Inventory System Techniques

Here are some techniques:

  • The first-in, first-out (FIFO) technique presumes the oldest methods are sold first. FIFO tells that goods you bought or manufactured first are those you sell first.
  • The last-in, first-out (LIFO) technique method, you sell your newest bought or manufactured goods first.
  • The average fee approach is your general inventory fee divided by the variety of products for your inventory.

Difference Between Perpetual Inventory System And Periodic

In contrast to the perpetual systems, periodic systems rely upon occasional bodily inventory counts to count inventory and cogs. Periodic structures require appreciably greater manual involvement in stock monitoring and information updates. Perpetual and periodic systems require different gear and techniques for recording inventory, even though they may be complementary.

  • In a perpetual system, employees keep charge of the products all the time. In a periodic machine, employees only check the items only at the specified time.
  • In a perpetual system, updates to the general ledger and stock ledger are non-stop with every transaction. In a periodic, updates to the public ledger occur while there is a physical dependence, not totally upon trade.
  • In a perpetual system, you record purchases inside the raw substances stock account or the merchandise account. You log purchases into the purchased asset account in a periodic system without adding any unit-count number data.
  • In a perpetual system, transactions are available at an utterly particular stage. As such, you may need behavior investigations into inventory-related mistakes quickly. In a periodic system, those investigations are more complicated because the gadget aggregates data to a high degree. It is tough to apply this data to pinpoint mistakes inside the procedure.


Perpetual inventory systems can be an investment to implement, but they have many strengths over periodic systems. While rare inventory systems can be appropriate for businesses with lower turnover or much less product variety, perpetual stock systems can provide significant advantages for companies that make many sales or have a broader range of product lines.

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