Hi,
If you want to expense out immediately upon purchase, you can do so by disabling perpetual inventory in Company as follows:
Please note follow points before doing it:
Non-Perpetual Inventory System:
- No real-time updates: In this system, inventory records are not updated continuously for each stock transaction. Instead, the inventory balance is determined only at the end of the accounting period through a physical count.
- Limited visibility: This system provides limited visibility into inventory levels throughout the year, making it challenging to track stock availability and manage inventory costs effectively.
- Manual adjustments: At the end of the period, any discrepancies between the physical count and the recorded inventory balance are adjusted through manual entries.
Example:
A small retail store uses a non-perpetual system. They purchase a shipment of 100 shirts but don’t record this transaction in their accounting system until the end of the month. When they conduct a physical count at month-end, they find that only 80 shirts are in stock. They then record an entry to adjust the inventory balance to 80 shirts.
Perpetual Inventory System:
- Real-time updates: This system records inventory transactions in real-time, updating inventory balances after each purchase, sale, or adjustment.
- Enhanced visibility: This system provides a constant view of inventory levels, enabling better stock management and cost control.
- Automated adjustments: The system can automatically adjust inventory balances based on transactions, reducing the need for manual entries.
Example:
A large online retailer uses a perpetual system. When they purchase a shipment of 100 shirts, the system immediately records the transaction, increasing the inventory balance by 100 shirts. As customers purchase shirts, the system reduces the inventory balance accordingly. If a shipment is lost or damaged, the system can be adjusted to reflect the loss or damage.
Key Differences:
| Feature | Non-Perpetual | Perpetual |
|---|---|---|
| Inventory updates | End of period | Real-time |
| Visibility | Limited | Enhanced |
| Adjustments | Manual | Automated |
| Cost | Lower | Higher (due to technology and labor) |
Choosing the Right System:
The choice between non-perpetual and perpetual systems depends on factors such as business size, industry, inventory value, and management requirements. Smaller businesses with less complex inventory may find a non-perpetual system suitable, while larger businesses with high-value inventory may benefit from the real-time visibility and automated adjustments of a perpetual system.