Accounting Dictionary

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Perpetual Inventory

Definition: Perpetual inventory is the continual updating of an entity's inventory records to account for additions to and subtractions from inventory for such activities as received inventory items, goods sold from stock, and items picked from inventory for use in the production process.

The inventory balances resulting from a perpetual inventory system will gradually diverge from the actual on-hand balances, due to unrecorded transactions and theft. Thus, it is necessary to periodically reconcile the perpetual inventory records to actual balances, usually through the use of cycle counting.