Debitoor Dictionary

Accounting terms explained in a simple way

Perpetual stock taking – what is perpetual stock taking?

Perpetual stock taking – also known as perpetual stock management or a perpetual inventory system – is a type of inventory valuation whereby a business uses electronic tracking systems to continually record inventory.

Small businesses can use several approaches to stock management. Read about periodic stock taking to find our which option could work best for you.

The development of electronic POS systems, barcoding, and radio frequency identification (RFID) made it possible for businesses to track changes to inventory in real-time, offering a highly detailed and up-to-date overview of current stock or cost of goods sold.

Before this technology was available, businesses relied on periodic stock taking, an inventory system whereby businesses carry out physical inventory counts at set times throughout the accounting year.

Why use perpetual stock taking?

For large organisations with extensive inventories, it is necessary to use perpetual stock taking to track inventory as physical counts would be too time-consuming. For small businesses with a minimal amount of inventory there are pros and cons to choosing perpetual stock taking over periodic stock taking.

Advantages of perpetual stock taking

  • Using electronic systems to continually track inventory saves businesses from regularly carrying out the time-consuming task of physical stock counts and eliminates the risk of human error when counting.
  • Perpetual stock taking gives a more accurate and up-to-date overview of inventory than periodic stocktaking, helping to prevent stockouts.

Disadvantages of periodic stock taking

  • Mistakes can still be made – for example, overstatements or understatements which come as a result from scanning errors or untracked inventory movements.
  • Electronic tracking systems can be expensive. Whilst they may be necessary for larger businesses with extensive inventories, they are not always required by small businesses who could feasibly carry out physical counts.

Physical inventory counts in perpetual stock taking

Whilst perpetual stock taking saves businesses from undertaking physical inventory counts on a regular basis, physical counts are still necessary from time to time.

Inventory records can sometimes vary from actual inventory levels due to breakage, loss, recording errors, or theft so physical counts enable businesses to verify inventory records and to make adjustments if necessary.