Perpetual Inventory Systems

1. Perpetual Inventory Systems

2. A detailed record of inventory is kept on an ongoing basis. Requires a certain level of technology in order to be cost-effectively used. How it works

3. Goods are received from suppliers. This generates a source document called a receiving report. These reports are sent to the data entry clerk along with any goods returned to suppliers. This information provides an accurate and up-to-date amount for the Merchandise Inventory account. THERE IS NO PURCHASES ACCOUNT!!!!! How it Works (Continued)

4. The sales end of perpetual inventory tends to be more complex. Normally, the business will have a scanner that reads a code on any merchandise sold. The information is then transferred to the business’ central computer and will automatically make deductions from the merchandise inventory account. How it Works (3)

5. Purchase of merchandise inventory for cash Merchandise Inventory 100.00 HST Recoverable 15.00 Bank 115.00 Note that there is no “Purchases” account in perpetual inventory! Example

6. Sales of merchandise for cash Bank 28.75 Sales 25.00 HST Payable 3.75 Cost of Goods Sold 15.00 Merchandise Inventory 15.00 The first journal entry represents the sale price of the merchandise and the second represents the cost of the merchandise. Example

7. Section 11.6 See the examples on p. 463-464 Reference