The incorrect unit price was recorded when purchasing raw materials, and it was stored in the perpetual inventory master file. The physical inventory was priced using the permanent records, hence the inventory valuation was inaccurate.
With computerised point-of-sale systems, perpetual inventory is a form of accounting that continuously records inventory changes in real time, doing away with the necessity for physical inventory inspections. With fast reporting of the amount of inventory on hand and an accurate reflection of the quantity of goods in stock, it offers a highly detailed perspective of changes in inventory.
When using this approach, a business does not make any effort to maintain thorough records of the products it has on hand; instead, purchases are noted as debits to the inventory database. The price of things is actually high.
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