What does perpetual inventory accounting involve when merchandise is received?

Perpetual inventory accounting involves continuously updating inventory records to reflect the current level of stock on hand. When merchandise is received, the correct action is to add the value of that merchandise directly to the inventory account. This real-time tracking allows businesses to maintain an accurate record of inventory levels at any point during the accounting period, enabling better inventory management, forecasting, and decision-making.

In this system, each purchase updates the inventory account immediately, rather than being recorded in a separate purchases account, and adjustments to Cost of Goods Sold occur only when inventory is sold. This method contrasts with periodic inventory systems where inventory counts and valuations are typically done at the end of a period.