 Hello in this lecture we're going to define perpetual inventory system. According to fundamental accounting principles while 22nd edition the definition of perpetual inventory system is method that maintains continuous records of the cost of inventory available and the cost of goods sold. So we're talking about an inventory system here. We can contrast a perpetual inventory system with a periodic inventory system. The perpetual inventory system recording the decrease in the inventory as well as the related cost of goods sold at the point of sale as opposed to a periodic inventory system which will only record the sales side of the transaction and not the decrease in inventory and the cost of goods sold until a later point in time when there is a physical count. So a perpetual inventory system then if we had a sale such as this selling the inventory here getting an IOU from the customer two parts of the journal entry we can think of them as two different journal entries or just two different parts of this transaction would then be journal entry related to accounts receivable going up if it's sold on account and sales increasing revenue increasing. Other half of the transaction would be that the inventory is going down and the cost of goods sold is going up. This second piece is the questionary journal entry when we think about the perpetual inventory system we recorded at this point in time when we think about a periodic inventory system we've recorded at a later point in time why because the second half of the journal entry may be more difficult we may need more software in order to record the second half notice that this price eight four five zero is the sales price that's the sticker price we know what that is the register will record that the cost however is not going to be on the sticker price the salesperson may not even know what that is the software or the register would have to know what that is and basically record it if we're going to use a perpetual inventory system otherwise a periodic system can be more simplified to use also important to note if we look at these two journal entries we're going to say here's the first journal entry recording the receivable and the sales here's the second recording the cost of goods sold and the merchandise we can see that assets have gone up by the receivable and down by the inventory so net assets have increased by that one uh thousand nine fifty net income also has gone up by the sales down by that cost and that's going to bring net income down so revenues going up increasing the net income costs of goods sold going up which is decreasing net income which results in that same net increase of one thousand nine fifty