PERPETUAL INVENTORY SYSTEM

Presented By: Syed Hassan Askari 073605-098

WHAT IS PERPETUAL INVENTORY SYSTEM?

Under this system the Inventory account is continuously updated. The Inventory account is increased with the cost of merchandise purchased from suppliers and it is reduced by the cost of merchandise that has been sold to customers.

TYPES OF PERPETUAL INVENTORY SYSTEM

We can keep the record of the inventory by three methods. LIFO (Last In First Out) FIFO (First In First Out) Weighted Average Method

1. 2. 3.

LIFO (Last In First Out)

In LIFO, a firm records the last units purchased as the first units sold. Under the perpetual system the Inventory account is constantly (or perpetually) changing.

FIFO (First In First Out)

Under the perpetual system, two transactions are recorded when merchandise is sold: (1) the sales amount is debited to Accounts Receivable or Cash and is credited to Sales, and (2) the cost of the merchandise sold is debited to Cost of Goods Sold and is credited to Inventory.

WEIGHTED AVERAGE METHOD

Under the perpetual system, "average" means the average cost of the items in inventory as of the date of the sale. This average cost is multiplied by the number of units sold and is removed from the Inventory account and debited to the Cost of Goods Sold account.

WEIGHTED AVERAGE METHOD

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