Perpetual Inventory vs Physical Inventory
LAST UPDATE: MAR 13, 2023
5 minutes reading
Inventory plays a crucial role in every business. A company requires inventory to satisfy client demand, yet neither too much nor too little inventory is acceptable. Perpetual inventory is favored by many and others believe that physical inventory is the best option.
Is physical or perpetual inventory the better strategy for your company? Making the best choice requires understanding the differences between the methodologies, how they compare, and how they impact your operations.
What Is Perpetual Inventory?
One solution to inventory accounting is perpetual inventory. The sales and purchases of inventory are tracked through an inventory management system. Additionally, Perpetual Inventory offers real-time data. To prevent out-of-stock situations, you can use it to update stock records.
In other words, it continuously updates records in real-time whenever a sale or buy takes place.
For example, a garment business might utilize perpetual inventory since they need to update the data in real-time to ensure that their customers can find the right dress.
Every time stock was received, the database added it to the available inventory, and every time it was bought, it was taken out of the database.
What Is Physical Inventory?
The act of physically counting inventories is known as physical inventory. It is done to keep tabs on the inventory costs associated with what is bought and sold. Finding damaged or outdated material is another benefit of the physical inventory procedure.
Additionally, it aids in determining the inventory’s true figures, which are listed in the automated software. As it has been discovered that automated software contains falsified inventory numbers. To detect it, a physical inventory count is helpful.
What Are the Differences Between Physical Inventory vs Perpetual Inventory?
Items that are added to or removed from the inventory are tracked and recorded continually by perpetual inventory. Additionally, it records the price of the products that are bought and sold. Physical inventories are conducted on a regular timetable to manually count and record products and keep track of the cost of what is bought and sold.
How Do Perpetual Inventory vs Physical Inventory Compare?
Remember that neither a perpetual nor a physical inventory can take the place of a visual check to make sure nothing is broken, spoilt, or taken. The technology you’ll require, the data you’ll get, and the price of inventory management systems vary.
- Technology – It is impossible to manually keep track of perpetual inventories. Automation is necessary, and cutting-edge software is available to assist you. Your items can be scanned or entered into the software.
- Data – Wherever your goods are in the process, it offers a real-time accounting of them. You will be able to immediately view and comprehend any purchases, sales, discards, or moves of products. Quantity and cost for every transaction are automatically updated.
- Cost – Setup expenses range from low to high, depending on the size of your company and the equipment required to track its inventory.
- Technology – you’ll set up a plan to periodically count each item in the inventory and record the results. You can set up a system for keeping records. However, it is possible to manually enter or scan inventory items and their costs into the platform using simple accounting software.
- Data – To compare the prior and current inventory, you’ll consult your manual or automated records. The level of detail you wish to monitor as objects are purchased, sold, transferred, or dumped is your choice. Running reports and comparing data is simple if you utilize accounting software.
- Cost – There aren’t many setup expenses if you keep manual records. Basic accounting apps and software typically have low to moderate fees.
How Do You Choose the Best Inventory Method?
What criteria can you use to determine if physical or perpetual inventory is best for your company?
- Inventory size
- Business locations
- Transaction volume
1. Inventory size
The amount of time it takes to maintain your inventory depends on its size. A small inventory may be counted manually with ease, but a large inventory can be challenging. Consider your predicted expansion and make long-term needs plans.
2. Business locations
Does your company operate from many locations, possibly exchanging commodities between them? Compare using perpetual inventory with shared data vs. physically tracking items at each location.
3. Transaction volume
Is your company a start-up or an established one? Consider how many transactions you make each day and how often you need to access information about purchases, sales, and inventory levels.
Compare the cost of manpower for routine physical counts against a technology that produces data continuously.
When your organization is small, you can use the physical inventory and work manually. However, when an organization expands, it must convert its manual processes to automated ones. This does not imply that physical inventory should be done away with. It is important to utilize it frequently since it makes it possible to compare data from the program with actual counts.
Inventory Management Software Can Be Useful
Bring your business where it needs to be with New G Solution, to have the best tools available. Using inventory management software makes it very easy to remain on top of everything related to inventory. Contact us.
By Using New G Solution Inventory Management Software, You Will:
- Control your inventory and stock levels across platforms and marketplaces.
- Powerful pricing services will provide you control over your B2B business.
- Monitor your items across several locations and storage facilities.
- Track your serials numbers
- Control your RMA.