Perpetual Inventory System
An inventory tracking method that continuously updates stock balances after every purchase, sale, or return in real time.
What is Perpetual Inventory?
A perpetual inventory system automatically records every inventory transaction—purchases, sales, returns, and adjustments—as they occur, maintaining a continuously updated balance of inventory quantities and costs. Modern point-of-sale systems, barcode scanners, and enterprise resource planning (ERP) software make real-time tracking practical. Because the system reflects current inventory levels at all times, management can immediately identify stockouts, theft, or spoilage. The cost of goods sold is updated with each sale rather than calculated only at period end. This contrasts with a periodic inventory system, which only counts physical inventory and calculates COGS at the end of each reporting period. Most large retailers and manufacturers use perpetual systems under GAAP, which allows any inventory costing method (FIFO, LIFO, or weighted average) to be applied within the perpetual framework.
Example
When a customer buys a laptop at a Best Buy store, the perpetual inventory system immediately decrements the inventory account by the laptop's cost, records the sale, and updates COGS—all in one automated transaction. The system can alert the purchasing team if stock falls below a reorder point, without waiting for a month-end physical count.
Source: FASB ASC 330 — Inventory