Final answer:
The question pertains to the Perpetual Inventory System used in business and accounting, where updates to inventory units and costs are made continuously as transactions occur. This system allows for real-time inventory tracking and more accurate financial reporting.
Step-by-step explanation:
The subject of the question refers to the method of inventory management where inventory units and costs are updated continuously as purchases and sales are made.
This concept is known as the Perpetual Inventory System. It is a method used in accounting and business where inventory records are updated on a real-time basis every time a sale or purchase occurs.
This system contrasts with the periodic inventory system, where inventory counts and cost updates occur at specific intervals, often at the end of an accounting period.
Advantages of Perpetual Inventory System
- Accurate Inventory Records: It provides a highly accurate and up-to-date record of inventory levels.
- Real-Time Data: Managers can make informed decisions based on real-time data, which is beneficial for inventory control and management.
- Better Financial Reporting: Financial statements can be more accurate as inventory can be valued and reported in real-time.
Businesses that employ the perpetual inventory system typically use barcode scanners and inventory management software to maintain an accurate count and cost of inventory items.
These tools are essential in ensuring the effectiveness of this system.