Which of the following best explains why a perpetual inventory system is considered an effective means of control over inventory?

• A. It requires less record-keeping than a periodic inventory system.
• B. It provides continuous, real-time records of inventory balances and transactions.
• C. It eliminates the need for physical inventory counts at year-end.
• D. It records purchases only at the end of the accounting period.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a perpetual inventory system: A perpetual inventory system continuously updates inventory records in real-time as transactions occur, such as purchases and sales. This contrasts with a periodic inventory system, which updates inventory records only at specific intervals, typically at the end of an accounting period.
2. Analyze the advantages of a perpetual inventory system: It provides real-time data on inventory levels, allowing businesses to monitor stock availability and make informed decisions about reordering or managing inventory. This is a key feature that enhances control over inventory.
3. Compare the perpetual inventory system to the periodic inventory system: A periodic system requires physical inventory counts at the end of the accounting period to determine inventory balances, whereas a perpetual system reduces reliance on such counts by maintaining continuous records.
4. Evaluate the options provided in the question: The correct explanation should align with the key feature of a perpetual inventory system, which is its ability to provide continuous, real-time records of inventory balances and transactions.
5. Conclude that the correct answer is: 'It provides continuous, real-time records of inventory balances and transactions,' as this is the primary reason why a perpetual inventory system is considered an effective means of control over inventory.