Graduate to a Perpetual Inventory Management System

There are two types of inventory management systems: periodic system and a perpetual system. Inventory is continually updated in a perpetual system. A periodic inventory system only updates inventory when a physical inventory is conducted. A perpetual inventory system updates continuously. Physical inventory counts are time consuming and sometimes require closing business to clients and customers during the process. Therefore, many businesses conduct physical inventory counts quarterly or annually.

In a periodic inventory system, items bought between physical inventory counts are recorded in an account flagged purchases. The balance in the purchases account is transferred to the inventory account when a physical count is performed. A periodic inventory system is often selected by small business maintaining a small amount of inventory. Management is unable to determine information about the costs of goods sold during the time period between physical inventory counts. Adjustments are only made for losses and obsolete inventory quarterly or annually, which may hamper budgeting.

Many businesses are graduating to a perpetual inventory system. Quantity amounts are loaded and updated upon shipment in a perpetual inventory system. Bar code scanners and radio frequency identification systems allow employees to check availability immediately. A perpetual inventory system allows for accurate and timely information, improved documentation for specific budget allocations and efficient controls for theft and inventory loss. Inventory discrepancies can be quickly investigated. Sales are increased due to precise shelf inventory readings. Customers receive shipments in a timely fashion. Interim financial statements are reliable.

There are a number of companies that manufacture software for perpetual inventory control. Wasp Barcode Technologies manufactures a software package or smaller businesses that prefer the advantages of a perpetual inventory system. The Wasp Inventory Software accurately tracks inventory to increase profitability margins. NetSuite provides real-time inventory information, streamlines purchasing and expedites orders. Zoho CRM improves a company’s workflow and turns site visitors into sales leads.

*Photo courtesy of Jericho Accounting at Flickr’s Creative Commons.