In a perpetual inventory system, a detailed record is maintained for each type of merchandise stocked, showing

• Units and cost of the beginning inventory
• Units and cost of each purchase
• Units and cost of the goods for each sale
• Units and cost of the goods on hand at any point in time.

This up-to-date record is maintained on a transaction-by-transaction basis. In a complete perpetual inventory system, the inventory record gives the amount of both ending inventory and the cost of goods sold at any point in time. In perpetual inventory control, the material is checked as it reaches its minimum value.

Advantages of Perpetual Inventory System

1. Stocks can be checked continuously thereby avoiding any malpractices
2. Stocks may be kept at a minimum level, thereby affecting savings in investment in stock.
3. Production is unaffected.
4. It facilitates proper inventory control, production planning, and production control.
5. This promotes moral health in personnel.
6. On detection of discrepancies, remedial measures can be taken immediately.
7. Reliable and accurate financial statements can be prepared from these records.
8. Loss of interest on capital invested in stock, loss due to deterioration can be avoided or kept at a minimum.
9. A proper perpetual inventory system leads to the introduction of continuous stock taking.
10. These records reveal the cost of materials, which in turn facilitates exercising control over costs.