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Perpetual Inventory System & Periodic Inventory System

<b>Definition:</b> Perpetual Inventory system is in practise in ERP Environments and periodic
inventory system is followed mostly in legacy applications where there is NO Integration
between Inventory and Accounts.

<b>What it is:</b> Under perpetual Inventory system the stock is accounted as an asset and any addition or issues is reduced from the asset account.

Under Periodic Inventory system the the opening stock is accounted as an asset and Purchases are accounted as Expense and at Year end closing stock is arrived based on physical count and taken as as asset.

<b>When it is set:</b> Perpetual Inventory system is in use only in computersied and ERP Systems
Periodic Inventory system is used in manual and Legacy systems(Before evolution of ERP Concept)

<b>Where it is set</b>: It is by Default available in Inventory Module in any ERP.

<b>Whom it is set</b>: By default in ERP environment, (in SAP or Oracle or any other ERP) it works with Perpetual Inventory system

<b>Why it is: </b> Perpetual Inventory system establishes better control over inventory and reduces the manual effort of doing Physical count and maintaining updated balances.

<b>How it is used:</b> With perpetual Inventory system your on hand inventory is dynamic and updated as soon as receipt and issues are accounted and prevents passing entries in back dated transaction
This way it establishes better inventory control

<b>Note</b>: The biggest problem with Perpetual Inventory system is you cannot check the inventory on a particular date as it keep on dynamically changes the values.

<b>Ex</b>: If you would like to know the stock 15 days before, the values would have got overwritten and getting the stock position as on that date is a problem provided if you run the reports on daily basis and store them in advance.

You can find more information and accounting for periodic and perpetual accounting system in the following URL

http://ccba.jsu.edu/accounting/PERPETUALPERIODICJE.HTML

Hope this helps

Regards
Sivakumar

Hi Siva Kumar,

Under Perpetual Inventory system can we arrive purchases during a period from Trail balance.

Our Accounting structure is:

Final entry at the time of Receiving items

Invenotry valuation A/c dr
Accounts Payable A/c Cr

while issuing for WIP:

WIP A/C dr
Invnentory valuation A/C cr

While completion of FG:

invneotry valuation A/c Dr
WIP valuation A/c

While Shiping:

COGOS A/c Dr
Invneotry valuation A/c Cr

Our client wants to arrive Purchases for preparation of SChedules from GL accounts by calulation also fine for us. Can you please help Us.

Thanks And regards,

Leela

HI Sivakumar

Thanks for your explanation for this point.

Hisham