Perpetual inventory basics
Objective: Record merchandise purchases and sales with COGS.
Recommended first: Your first journal entries
In a perpetual system, Inventory is updated with every purchase and sale. A sale has two parts: revenue at selling price, and cost of goods sold at cost. This course states the system and costing method in every inventory exercise.
A perpetual system gives up-to-date inventory and cost of goods sold, but it still needs periodic counts to catch shrinkage and errors. Each sale is two entries in one: revenue at selling price and cost at inventory cost. Purchase-related costs such as freight-in are added to inventory when the task says so.
Check your work
- Did each sale record both revenue and cost?
- Are purchases added to Inventory?
- Does the inventory balance agree with counts?
A periodic system, used by some small businesses, records purchases in a separate account and computes cost of goods sold only at period end from a count. This course focuses on the perpetual system and states the system in every exercise.
Goods sold for $1,000 that cost $600.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | $1,000.00 | |
| Sales Revenue | $1,000.00 | |
| Cost of Goods Sold | $600.00 | |
| Inventory | $600.00 |
Common mistakes
✗ Recording COGS at selling price.
✓ COGS is the cost of the goods.
Guided practice
Use hints freely here.
Item 1 of 1
Buy inventory for cash
On Mar 4, 2026, Little Fern Online Shop buys $1,240.00 of stock for resale, paying immediately (perpetual system).
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Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 6
Sale of goods on account (perpetual)
On Mar 11, 2026, Little Fern Online Shop sells goods on account for $950.00. The goods cost $570.00. It uses a perpetual system. Record both effects in one compound entry.
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Key terms
- Perpetual inventory
- Updating inventory with every purchase and sale.
- Cost of goods sold
- The cost of inventory sold in a period.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.