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

Powered by:

SearchCompliance

  • smart contract

    A smart contract, also known as a cryptocontract, is a computer program that directly controls the transfer of digital currencies...

  • 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 ...

SearchSecurity

SearchHealthIT

  • Health IT (health information technology)

    Health IT (health information technology) is the area of IT involving the design, development, creation, use and maintenance of ...

  • fee-for-service (FFS)

    Fee-for-service (FFS) is a payment model in which doctors, hospitals, and medical practices charge separately for each service ...

  • biomedical informatics

    Biomedical informatics is the branch of health informatics that uses data to help clinicians, researchers and scientists improve ...

SearchDisasterRecovery

  • risk mitigation

    Risk mitigation is a strategy to prepare for and lessen the effects of threats faced by a data center.

  • ransomware recovery

    Ransomware recovery is the process of resuming options following a cyberattack that demands payment in exchange for unlocking ...

  • natural disaster recovery

    Natural disaster recovery is the process of recovering data and resuming business operations following a natural disaster.

SearchStorage

  • RAID 5

    RAID 5 is a redundant array of independent disks configuration that uses disk striping with parity.

  • non-volatile storage (NVS)

    Non-volatile storage (NVS) is a broad collection of technologies and devices that do not require a continuous power supply to ...

  • petabyte

    A petabyte is a measure of memory or data storage capacity that is equal to 2 to the 50th power of bytes.

Close