Inventory of the company is the finished goods stock held in the premises of business for sale. Inventory of the company needs to be in the stock when a potential customer files an order otherwise it will be bad for the reputation of the business to turn down a customer because the business does not have the inventory in stock to sell.
Definition of perpetual inventory
Perpetual inventory is a system in which the book inventory of the business is kept up to date to the actual inventory of the business. In this system, the complete information on the inventory and its availability is present in the books of the business. This system has made it easy to conduct business and with the help of this system, book inventory becomes almost the same as the actual warehouse inventory. This system works by interconnecting the purchase and the point-of-sale system. This helps the business in updating the inventory by altering the levels when an order is placed or sale is made.
Need of perpetual inventory system
Usually, the inventories in the business are not updated on the regular basis and the figure of inventory in the books in an accurate reflection of the figure of inventory actually held in the stock. This causes problems for the business as due to this, the inventory systems are not properly updated, and sometimes the business has to turn down potential customers since the inventory ordered is not available in stock. With the introduction of the perpetual inventory system in business environment, this problem is easily solved and since the inventory figures are continuously updated, there is no loss of customers and the profitability of the business is not compromised.
Working of the perpetual inventory systemIn the 1970s, with the invention of digital computers, the implementation of the perpetual inventory system became easier. Before that, the periodic inventory system was used, which was not a sophisticated system. The perpetual inventory system is maintained with the help of bar coding all the inventory items or radio-frequency identification (RFID). This system allows the computers to process the inventory information in an efficient manner and update the inventory levels.