Frequently Asked Questions
What is an example of a periodic inventory system?
Periodic inventory is an accounting system for stock valuation that’s performed at specified intervals. Companies physically count their products at the end of the accounting period and use this information to balance their general ledger. From there, they’ll apply that inventory balance to the next (or new) period. Businesses who frequently use a periodic approach include art galleries and car dealerships, both of whom sell relatively few units each month.
When would you use a periodic inventory system?
The periodic inventory system is ideal for smaller businesses with minimum amounts of inventory. Lower inventory levels mean the physical inventory count is easier to complete, and it’s also easier to estimate the cost of goods sold for temporary time periods. In addition, a periodic approach is best suited for companies who can calculate the cost of closing inventory using LIFO, FIFO, ABC analysis, or their preferred accounting method.
What is the difference between perpetual and periodic inventory systems?
With periodic inventory systems, physical inventory counts are conducted weekly, monthly, quarterly, or at the end of the year, depending on the size of the business, the quantity of stock, and the rate of inventory turnover. In essence, periodic strategies tell you about the inventory at the beginning and end of an accounting period (but don’t track stock on a day-to-day basis).
By contrast, perpetual inventory systems are much less time-consuming, thanks to built-in automations for real-time inventory tracking around the clock. Perpetual inventory accounting continually updates your stock levels by recording when SKUs are received, sold, moved, and picked, to then deliver the most precise, up-to-date inventory information.