Perpetual inventory system

A perpetual system carries a running quantity and cost record. Purchases add a layer or update an average; sales remove assigned cost; returns, damage, shrinkage, and corrections create their own movements. That visibility can surface errors sooner, but it does not prove the records are complete.

At close, compare book units with the controlled count and ownership reconciliation. Investigate differences before posting them. Calling every unexplained difference “shrinkage” hides cutoff errors, consignment mistakes, unit-of-measure problems, duplicate receipts, and unrecorded movements.

Each event record needs a date, SKU, quantity, assigned unit cost, source, counterparty, and link to the related payable, revenue, receivable, or return. The resulting rollforward shows opening balance, receipts, cost assigned to sales, returns, transfers, adjustments, and book ending balance. The count and rights ledger supply an independent ending population.

Reconcile before posting. First correct identified recording errors, such as a duplicate receipt or omitted return. Then classify any remaining supported loss. A book-to-count difference is evidence of a disagreement; it does not by itself prove theft, damage, or the correct expense account. The reconciliation must also preserve unit and dollar effects.

The cost-system discussion in ASC 330-10-30-8 focuses on procedure quality, sound principles, and consistent use. Paragraph 30-9 addresses FIFO, average, and LIFO assumptions. Neither paragraph makes a perpetual record self-validating or removes the reporting-date count.

Trace the Cedar Trail recordkeeping example, then prepare the independent Northstar reconciliation.