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Business and Financial Policies and Procedures

Request an Exemption from Using a Perpetual Inventory System

Before You Begin

Campus units with inventories of merchandise for resale must maintain a perpetual inventory system that provides control over each item. Perpetual inventory systems must use either the First In, First Out (FIFO) or the Moving Average method of valuating the inventory. To change from one perpetual valuation method to the other, obtain approval in writing from University Accounting and Financial Reporting (UAFR).

Units may receive an exemption from using a perpetual system after consulting with UAFR and receiving approval from their campus OBFS chief business officer or the University Controller (for University of Illinois System Offices units). If a perpetual inventory exemption is granted, the unit must implement a periodic inventory system using the FIFO method of valuation.


To request an exemption from using a perpetual inventory system:

  1. Familiarize yourself with the nature and scope of your goods for resale inventory, with definitions of perpetual and periodic inventory systems, and with policy guidelines for valuing perpetual inventories.
  2. Ask the following questions:
    • Is the volume of sales small?
    • Is the value of the goods sold small?
    • Is the volume of merchandise for resale held on-hand routinely small?
    • Are the goods held easily perishable?
    • Can inventory levels be assessed easily without a perpetual system?
    • Is the nature of the inventory goods otherwise not conducive to maintaining an effective perpetual inventory system?
  3. If the answer to any of these is yes, consider requesting an exemption. Your unit may make the case that the cost and effort required to maintain a perpetual inventory record for these goods does not provide enough internal control or other benefits to warrant maintaining one. 
  4. Consult with UAFR to determine whether they concur and will support your request for an exemption. If so, UAFR will provide guidance for submitting your request to the appropriate OBFS chief business officer for approval.

Related Policies and Procedures

Monitor a Self-Supporting Fund
Assess Your Merchandise Inventory Management Practices
Conduct a Physical Inventory to Adjust Your Merchandise Inventory Record

Additional Resources

Methods of Merchandise Inventory Valuation

Last Updated: January 9, 2017 | Approved: Senior Associate Vice President for Business and Finance | Effective: January 2013

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