Perpetual Inventory System Journal Entries

The perpetual inventory system journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting under a perpetual inventory system.

What is the Perpetual Inventory Method?

The perpetual inventory method is a method of accounting for inventory that records the movement of inventory on a continuous (as opposed to periodic) basis. It has become more popular with the increasing use of computers and perpetual inventory management software.

Although the perpetual inventory system can be more expensive and time consuming to maintain, it has the advantage that the accounting records always reflect the levels of inventory on hand at any point in time, allowing real time management of inventory.

Under the perpetual inventory method each time there is a movement journals are processed to record the change. Purchases are debited to inventory and sales are credited to inventory, with the debit going to the cost of goods sold account.

At the end of an accounting period, the balance on the perpetual inventory account should be the same as the physical inventory available. Differences will arise due to accounting errors, theft, shrinkage etc. An inventory count is normally carried out at least once a year to allow for discrepancies to be investigated and corrected,

Typical Perpetual Inventory System Journal Entries

In each case the perpetual inventory system journal shows the debit and credit account together with a brief narrative. For a fuller explanation of journal entries, view our examples section.


To purchase goods from a supplier using perpetual inventory system journal entries
Account Debit Credit
Inventory XXX
Accounts payable XXX

To record a supplier purchase discount
Account Debit Credit
Inventory XXX
Accounts payable XXX

To record freight costs
Account Debit Credit
Inventory XXX
Accounts payable XXX

To record a purchase return to a supplier using perpetual inventory system journal entry
Account Debit Credit
Accounts payable XXX
Inventory XXX

To record the sale of goods to a customer using perpetual inventory system journal entry
Account Debit Credit
Cost of goods sold XXX
Inventory XXX
Sales XXX
Accounts receivable XXX

To record a sales return from a customer using perpetual inventory system journal entry
Account Debit Credit
Inventory XXX
Cost of goods sold XXX
Sales returns XXX
Accounts receivable XXX

To record a physical inventory count shortage
Account Debit Credit
Loss on inventory write down XXX
Inventory XXX

To record inventory received not invoiced by supplier
Account Debit Credit
Inventory XXX
Inventory received not invoiced XXX

*It should be noted that for a perpetual inventory system, there is no end of period bookkeeping entry.

Perpetual vs Periodic Inventory System Journal Entries

This reference guide is for perpetual inventory system, if the business is using a periodic inventory system the journal entries are different and can be seen in our periodic inventory system journal entries reference guide.

perpetual inventory system journal entries
Perpetual vs Periodic Inventory System Journal Entries

The perpetual vs periodic inventory system journal entries diagram used in this tutorial is available for download in PDF format by following the link below.

Last modified April 18th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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