Referring to the earlier topic, which covered what is inventory, the essential question is how to correctly manage inventory, track and calculate cost of inventory sold and cost of inventory, which remains at the end of the accounting period for further sales.
For this purpose two inventory management systems can be used:
- perpetual inventory system
- periodic inventory system
What is Perpetual Inventory System?
Under Perpetual Inventory System changes in Inventory are tracked continuously. Inventory account is updated after each transactions, either purchase, or sale.
- Perpetual inventory management system allows to know at each moment of time, how many items were sold and how many items are left in inventory
- This is precise system, which allows to control all inventory movements
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