Perpetual Inventory System Journal Entry: Example, Calculation

If you want a channel to manage goods as well as the number of imported goods, a perpetual inventory system journal entry will be a reasonable choice. Considered one of the important components applied by many businesses to optimize the management of goods, the journal of the annual inventory system will bring a lot of benefits if you know the applications it is suitable for. fit. This article will discuss issues such as its definition, for example of perpetual inventory system log entries.

What is perpetual inventory system journal entry?

 The entry thoroughly updates the inventory system and the system by which the user can continuously update the list of records in real-time. The perpetual inventory system log entry has the ability to update the inventory database to manage discontinued inventory, items shipped from the manufacturer, finished products, etc. sold from stock or discarded products. Currently, the perpetual inventory system is being used by many businesses because of its benefits. If managed properly, it can provide consistently accurate information. If you want the system to work at its best, combine it with a computer database of inventory quantities and their locations. Permanent inspection systems are important for businesses that plan to install a scheduling system that requires materials. 

👉 Read More: Top 10 Advantage Of Perpetual Inventory System You Should Know 

👉 Read More: Top 10 Disadvantages Of Perpetual Inventory System

Advantages of perpetual inventory system

• With the development of technology, the perpetual inventory system will help employees not have to physically count the amount of inventory anymore.
• Inventory quantity will always be updated and provided to the system.
• The perpetual inventory system is less error-prone and easier to maintain than the periodic system.
• Accountants will not need to change inventory levels often, everything is done automatically through the computer system.
• Note that the perpetual inventory system will require you to make your own adjustments in the event of cable damage or loss or unrecorded transactions. The reason for this is that the computer system cannot reflect these adjustments.
• For businesses that regularly perform transactions such as buying/selling or moving inventory, a perpetual inventory system is always important because it helps to track what is happening in real-time, wherever you are.
• With the perpetual inventory system, the inventory records will become more accurate. Materials management staff will have a database to make more appropriate adjustments in capital investment. From there, the inventory level will be reduced, leading to saving money for businesses.
• One advantage of having a perpetual inventory system in an enterprise is the accuracy of records it gives to other systems. For example, customer advisors will know the amount of inventory currently in stock to quickly respond to customer order needs. Besides, the accountant also has the necessary information to make the ending inventory balance for reporting.

How to perpetual inventory system journal entry work

The perpetual inventory system will be based on the following two main principles:

• Each transaction impacting an inventory item is documented, generally, at the time the transaction occurs. Each transaction's journaling will contain an increase or reduction in units in the inventory account, as well as a corresponding rise or decrease in the inventory account.
• A physical inventory of all things is done at some time during the accounting period, generally once a year, and this is the foundation for modifying the balance. In the inventory account, there are about equal units on hand. This cycle is also known as the "permanent corrective."

Perpetual inventory system journal entry example

The Metro company buys 15 washing machines on credit for $500 each. The seller offers a 5% discount if payment is completed within 10 days after purchase. The Metro firm records inventory purchases using the net price approach. To document the acquisition of products, the following journal entry would be made in Metro company's books: 

Net Discount: ($500 × 15) - $25 discount Besides, Metro also has to pay $ 320 for freight and $ 100 for insurance. The following log book will be made to record the payment of freight and insurance costs: 

A week later, Metro returned 5 washing machines to the supplier. Returning the machine will help Metro save on inventory costs and accounts payable. The following entry will be made to record this drop: 

 2 days later, Metro submitted the payment via online banking and took advantage of the supplier's discount. Metro receives a discount if payment is made within 10 days. To record the payment, the following entry will be made: 

Metro purchased four washing machines for $750 apiece a week later. Customers are not permitted to receive discounts from Metro Company. When four washing machines are sold, the cost of goods sold is transferred from the inventory system to the cost of the goods sold account. There will be two log entries: one to sell four washing machines and one to move the cost from the accounting system to the cost of sales account: 

Cost of four sold machines: [($475 x 10 machines) + $420 for expenditures]/10 = $517 for each machine $517 x 4 machines = $2,068. To explain the occurrences of inventory cost rise and decline, the Metro company's Inventory T-account is shown below: 

👉 Read More: Inventory Journal Entries in Accouting: Step And Flow 

👉 Read More: Journal Entry For Obsolete Inventory: Example And Calculation 

👉 Read More: Manufacturing Overhead Journal Entry

Conclusion

This article has summarized for you the necessary content that you need to write about the journal entry for perpetual inventory system. Perhaps from there you also understand whether to apply the perpetual inventory system journal entry into the supply chain system of the business. Hope you have a good time with Efex.