Perpetual inventory system definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Periodic inventory system can be defined as: Method that maintains continuous records of the cost of inventory available and the cost of goods sold. Perpetual inventory system can be contrasted to a periodic inventory system, perpetual inventory system tracking the reduction in inventory and cost of goods sold at the point of sail, periodic inventory system tracking the reduction of inventory and related cost of goods sold at a later time. We may ask ourselves, why wouldn’t we use a perpetual inventory system, tracking inventory at the point sale being the logical thing to do, that being the point in time inventory goes down, but in some cases it not easy to set up a perpetual inventory system, a period system being more cost effective. A perpetual inventory system requires us to know and record the cost of sale for each transaction, the cost of sale not generally on the sticker price as the sales price is. Computer system can help us with this and make a perpetual inventory system more manageable. It is important to note that a perpetual inventory system does not eliminate the need for a physical count of inventory.
