Question
Under a perpetual inventory system, the Inventory account balance is:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
Under a perpetual system the inventory account is updated continuously, so every sale needs two entries: one at selling price for the revenue and receivable, and a second at cost moving inventory into cost of sales. The inventory balance is therefore available at any moment without a count.
Common mistakes
- Recording only the revenue entry on a sale and omitting the cost-of-sales entry.
- Posting purchases to a Purchases account — that is the periodic system; under perpetual they go straight to Inventory.
- Recording freight, returns and allowances outside the inventory account instead of adjusting its cost.
Further readingIAS 2: costing methods and NRV