Perpetual Stock
Perpetual stock is a system where inventory levels are tracked continuously in real-time, usually using an inventory management software or an electronic point-of-sale (POS) system. Every time a product is sold or received, the inventory levels are updated automatically, allowing businesses to maintain an accurate and up-to-date view of their inventory levels at all times. With perpetual stock, businesses can access real-time inventory information, allowing them to make informed decisions on restocking, pricing, and promotions.
| Sales |
$720,652.00 |
| Cost of Goods Sold |
-$662,785.00 |
| Gross Profit |
$57,867.00 |
The accounting entries to record stock using the perpetual method are:
| When a sale is made |
Sales - CR
|
Accounts Receivable - DR
|
|
Stock on Hand - CR
|
Cost of Goods Sold -DR
|
| When a purchase is made |
Accounts Payable - DR |
Stock on Hand - CR |
Periodic Stock
On the other hand, periodic stock is a system where inventory levels are counted at regular intervals, usually at the end of the accounting period, such as monthly, quarterly, or annually. This method involves physically counting the inventory and updating the inventory records manually. The inventory information is therefore not accurate at all times, which can lead to stock-outs or overstocking.
| Sales |
$720,652.00 |
| Opening Stock |
$852,672.00 |
| Purchases |
$525,113.00 |
| Less Closing Stock |
-$715,000.00 |
| Cost of Goods Sold |
-$662,785.00 |
| Gross Profit |
$57,867.00 |
The accounting entries to record stock using the periodic method are:
| When a sale is made |
Sales - CR |
Accounts Receivable - DR |
| When a purchase is made |
Purchases - DR |
Accounts Payable - CR |
*** Using the periodic method you need to do manual entries to record the movement in your opening and closing stock to get a true gross profit
Some stock systems, such as Unleashed or Cin7Core, allow you to record stock using a perpetual method, and there are stock systems, like CIN7, which allow you to use either periodic or perpetual inventory management.
Picture this: You own a small boutique selling handmade jewelry, and you have a periodic stock system in place. At the end of the month, you want to see your monthly profit but you haven't done a stock take therefore you don't know your closing stock value. This means you can't get an accurate Profit and Loss Report.
Now imagine that you switched to a perpetual stock system. You can run your Profit and Loss report at any stage of the month and get a accurate position of your business allowing you to make decisions quickly and have confidence in the figures.
Benefits of Perpetual Stock:
Real-Time Inventory Information: A significant benefit of perpetual stock is that businesses have access to real-time inventory information, allowing them to make informed decisions on inventory management. This real-time data helps businesses avoid stock-outs, overstocking, and obsolete stocks, ensuring that they always have the right amount of inventory on hand.
Improved Accuracy: Perpetual stock systems are usually more accurate than periodic stock systems. Since inventory levels are tracked continuously, there is less room for human error, reducing the likelihood of discrepancies between physical and recorded inventory levels.
Cost Savings: Perpetual stock systems can help businesses save money in several ways. For instance, real-time inventory information allows businesses to optimize their inventory levels, reducing the costs associated with carrying excess inventory. Additionally, real-time inventory information helps businesses avoid stock-outs, which can result in lost sales and customer dissatisfaction.
Increased Efficiency: With real-time inventory information, businesses can optimize their supply chain operations, reducing lead times and ensuring that inventory is available when needed. This optimization can lead to increased efficiency and reduced costs.
While both perpetual stock and periodic stock have their advantages and disadvantages, perpetual stock is generally the preferred method for businesses looking to manage their inventory effectively. With real-time inventory information, improved accuracy, cost savings, and increased efficiency, businesses can streamline their operations, reduce costs, and improve customer satisfaction. Implementing a perpetual stock system may require an investment in inventory management software and hardware, but the long-term benefits are well worth the cost.
If you would like to know more; we are happy to discuss the available options for your inventory management. Don't hesitate to Contact Us.
