Browse Definitions:

periodic inventory system

A periodic inventory system is a mechanism for measuring the level of inventory and the cost of goods sold (COGS) by using an occasional physical count. Periodic systems use regular and random inventory audits to update inventory-tracking information. Typically, the physically counted inventory on hand is compared to sales and receipt data to identify any discrepancies.

Periodic inventory systems were more widely used before computers made real-time inventory management more efficient. Conducting periodic counts requiring that each item in stock be tallied by hand can be time-consuming and tedious. Companies using this method often have to shut some or all their business down while the count is under way.

How periodic inventory systems work

In periodic inventory systems, merchandise purchases are recorded in a purchases account, a ledger listing all inventory purchases and their costs. The inventory and COGS accounts are updated at the end of a set period, which could be once a month, once a quarter or once a year. COGS is a key accounting metric, which when subtracted from revenue, shows a company's gross margin. Under the periodic inventory system, COGS is calculated as follows:

Beginning Balance of Inventory + Cost of Inventory Purchases - Cost of Ending Inventory

Periodic vs. perpetual inventory systems

Periodic systems do not track inventory daily, unlike perpetual inventory systems, which record store balances of inventory after every transaction through point-of-sale (PoS) inventory systems and do not rely solely on quarterly or annual data to calculate COGS. Generally accepted accounting principles permit companies to use either periodic or perpetual systems to monitor inventory.

Managers at companies that are small or resource-constrained may have to weigh the costs and benefits of using perpetual versus periodic inventory systems. To cover all bases, some experts recommend regularly performing physical audits under both perpetual and periodic inventory systems.

This was last updated in September 2017

Continue Reading About periodic inventory system

Start the conversation

Send me notifications when other members comment.

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

Please create a username to comment.


Extensiones de Documento y Formatos de Documento

Accionado por:


  • risk map (risk heat map)

    A risk map, also known as a risk heat map, is a data visualization tool for communicating specific risks an organization faces. A...

  • internal audit (IA)

    An internal audit (IA) is an organizational initiative to monitor and analyze its own business operations in order to determine ...

  • pure risk (absolute risk)

    Pure risk, also called absolute risk, is a category of threat that is beyond human control and has only one possible outcome if ...


  • federated identity management (FIM)

    Federated identity management (FIM) is an arrangement that can be made among multiple enterprises to let subscribers use the same...

  • cross-site scripting (XSS)

    Cross-site scripting (XSS) is a type of injection security attack in which an attacker injects data, such as a malicious script, ...

  • firewall

    In computing, a firewall is software or firmware that enforces a set of rules about what data packets will be allowed to enter or...




  • bad block

    A bad block is an area of storage media that is no longer reliable for storing and retrieving data because it has been physically...

  • all-flash array (AFA)

    An all-flash array (AFA), also known as a solid-state storage disk system, is an external storage array that uses only flash ...

  • volume manager

    A volume manager is software within an operating system (OS) that controls capacity allocation for storage arrays.


  • hybrid hard disk drive (HDD)

    A hybrid hard disk drive is an electromechanical spinning hard disk that contains some amount of NAND Flash memory.