Perpetual inventory control is one in which an actual physical count and valuation of all inventory on hand is taken at the close of each accounting period.
options: True False
The correct answer and explanation is:
Correct Answer: False
Explanation (300 words):
Perpetual inventory control is not a system where an actual physical count of all inventory is taken at the end of each accounting period. Rather, it is an inventory management system that continuously tracks inventory levels in real time through the use of computerized systems or records.
In a perpetual inventory system, inventory records are updated immediately after each purchase or sale. For example, when a sale is made, the inventory count is reduced instantly, and when new stock is purchased, it is added to the system immediately. This approach allows businesses to have a real-time overview of their inventory, helping with decisions about reordering, stocking, and sales.
By contrast, the periodic inventory system is what the question actually describes. In a periodic system, physical counts of inventory are conducted at the end of an accounting period to determine the quantity and value of inventory on hand. This method does not keep a continuous record and can lead to discrepancies between actual and recorded inventory, which is why it requires periodic checks.
Perpetual inventory systems are more accurate and are commonly used in businesses with high inventory turnover, such as retail stores using barcode scanners. They provide immediate insights into inventory shrinkage (loss due to theft, damage, or error) and help maintain optimal stock levels.
However, even with perpetual systems, companies may still conduct periodic physical inventory counts as a verification measure to ensure the accuracy of their electronic records, but this is supplementary—not the primary method of inventory tracking.
In summary, the statement is false because perpetual inventory control does not rely on periodic physical counts as its main tracking method. Instead, it uses continuous, real-time updates to monitor inventory levels.