Browse Definitions :
Definition

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.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

SearchCompliance

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

  • privacy compliance

    Privacy compliance is a company's accordance with established personal information protection guidelines, specifications or ...

  • data governance policy

    A data governance policy is a documented set of guidelines for ensuring that an organization's data and information assets are ...

SearchSecurity

SearchHealthIT

  • telemedicine (telehealth)

    Telemedicine is the remote delivery of healthcare services, such as health assessments or consultations, over the ...

  • Project Nightingale

    Project Nightingale is a controversial partnership between Google and Ascension, the second largest health system in the United ...

  • medical practice management (MPM) software

    Medical practice management (MPM) software is a collection of computerized services used by healthcare professionals and ...

SearchDisasterRecovery

SearchStorage

  • megabytes per second (MBps)

    Megabytes per second (MBps) is a unit of measurement for data transfer speed to and from a computer storage device.

  • zettabyte

    A zettabyte is a unit of measurement used by technology professionals and the general public to describe a computer or other ...

  • hybrid flash array

    A hybrid flash array is a solid-state storage system that contains a mix of flash memory drives and hard disk drives.

Close