Answer to Question #258475 in Accounting for Kipro

Question

When is perpetual inventory system method appropriate in inventory management

Answer 1

A perpetual inventory system is an inventory management method that records when stock is sold or received in real-time through the use of an inventory management system that automates the process. Determining the cost of goods sold requires taking inventory. The most commonly used inventory valuation methods under a perpetual system are: first-in first-out (FIFO) last-in first-out (LIFO). A company which uses a perpetual inventory system needs two journal entries when it sells merchandise. A company which uses a perpetual inventory system debits inventory and credits cost of goods sold when it sells merchandise.