Perpetual Inventory
The Perpetual Inventory system records accounting entries automatically for every stock transaction, ensuring that inventory values and financial records remain synchronized in real time. Unlike the Periodic Inventory method, where stock adjustments are made at regular intervals, Perpetual Inventory updates inventory accounts immediately whenever stock is received, transferred, issued, or delivered.
Each Warehouse can be linked to a separate inventory account, allowing businesses to track inventory values warehouse-wise while maintaining accurate financial statements.
Perpetual Inventory is enabled by default for new ERPNext companies.
1. Enabling Perpetual Inventory
- Go to Home → Accounting → Company.
- Open your Company record.
- Enable Perpetual Inventory.
Before using Perpetual Inventory, configure the following default accounts in the Company:
- Default Inventory Account
- Stock Received But Not Billed
- Stock Adjustment Account
- Expenses Included In Valuation
- Default Cost Center
If Perpetual Inventory is disabled, ERPNext will not create accounting entries for stock transactions automatically. Inventory balances must then be adjusted manually using Journal Entries.
2. Warehouse Account Configuration
Each warehouse can have its own Inventory Account for warehouse-wise financial tracking.
When ERPNext creates General Ledger entries, it determines the inventory account in the following order:
- Inventory Account configured on the Warehouse.
- Inventory Account configured on the Parent Warehouse.
- Default Inventory Account configured in the Company.
3. How Perpetual Inventory Works
Whenever stock moves, ERPNext automatically creates both Stock Ledger Entries and General Ledger Entries.
| Transaction | Accounting Effect |
|---|---|
| Purchase Receipt | Increases Stock In Hand and credits Stock Received But Not Billed. |
| Purchase Invoice | Clears the Stock Received But Not Billed liability. |
| Delivery Note | Reduces inventory and records Cost of Goods Sold. |
| Sales Invoice (Update Stock) | Records both sales accounting and inventory accounting together. |
| Material Receipt | Increases inventory value. |
| Material Issue | Reduces inventory value. |
| Material Transfer | Transfers inventory value between warehouses. |
4. Example Workflow
A company purchases 10 units of an item at $200 each.
Additional charges:
- Shipping Charges: $100
- Customs Duty: $150
- VAT: $200
The valuation amount becomes:
- Purchase Cost = $2,000
- Charges Included in Valuation = $250
- Total Inventory Value = $2,250
ERPNext increases the Warehouse Inventory Account by the valuation amount and credits the Stock Received But Not Billed account until the Purchase Invoice is submitted.
5. Purchase Receipt
When a Purchase Receipt is submitted:
- Inventory value increases.
- The Warehouse Inventory Account is debited.
- Stock Received But Not Billed is credited.
- Charges marked as Valuation or Total and Valuation are included in the inventory valuation.
6. Purchase Invoice
When the supplier invoice is received:
- The Stock Received But Not Billed account is debited.
- The supplier payable account is credited.
- The temporary liability created during Purchase Receipt is cleared.
7. Delivery Note
When inventory is delivered to a customer:
- The Warehouse Inventory Account is credited.
- The Cost of Goods Sold account is debited.
- The inventory value removed is based on the selected valuation method (FIFO, Moving Average, or Serial Number valuation).
Purchase Rate = $200
Charges Included in Valuation = $250 ÷ 10 = $25
Valuation Rate = $225 per unit
If 5 units are delivered:
Cost of Goods Sold = 5 × $225 = $1,125
8. Sales Invoice with Update Stock
If a Sales Invoice is created with Update Stock enabled, ERPNext combines the accounting effects of both the Sales Invoice and the Delivery Note into a single transaction.
In addition to normal sales accounting entries, ERPNext automatically updates:
- Warehouse Inventory Account
- Cost of Goods Sold
9. Stock Entry Transactions
Perpetual Inventory also creates accounting entries for Stock Entries.
| Stock Entry Type | Accounting Effect |
|---|---|
| Material Receipt | Increases inventory value. |
| Material Issue | Reduces inventory value. |
| Material Transfer | Moves inventory value between warehouse accounts. |
10. Benefits of Perpetual Inventory
- Automatically creates accounting entries for every stock transaction.
- Keeps Stock Ledger and General Ledger synchronized.
- Provides real-time inventory valuation.
- Improves Balance Sheet accuracy.
- Supports warehouse-wise inventory accounting.
- Automatically recalculates inventory values after backdated transactions or valuation changes.
Summary
Perpetual Inventory enables ERPNext to maintain inventory and accounting records automatically for every stock movement. By updating Stock Ledger and General Ledger entries in real time, it provides accurate inventory valuation, warehouse-wise financial tracking, and reliable financial reporting without requiring manual inventory adjustments.
