Does managing inventory feel like multiple tasks, including tracking incoming stock, managing outgoing stock, and keeping records up-to-date? The periodic inventory system offers a simpler, cost-effective path by counting inventory at set times. Let’s walk through how it works, its strengths and weaknesses, and whether it suits your business model.
A periodic inventory system is a method where you don’t update inventory counts with every sale or purchase. Instead, you conduct a physical count at specific times, like monthly, quarterly, or annually. Through this system, you’ll know your inventory levels and cost of goods sold (COGS) only after these counts. It’s an ideal choice for businesses that don’t require up-to-the-minute stock data.
Using the periodic stock system is simple:
Until that final count, your records only show starting inventory and purchases—not the exact quantities on hand.
Even within a periodic system, you need a way to value inventory. Popular methods include:
Your choice affects how profit and inventory are reported once counts are done.
Whenever you buy inventory:
At period end, after counting and calculating:
This moves the purchases into inventory and figures in the right cost for COGS.
Here’s a simple comparison of the periodic and perpetual inventory systems:
Feature | Periodic System | Perpetual System |
---|---|---|
Record Updates | At set intervals | Continuous, real-time |
Inventory Visibility | Only after count | Always current |
Cost & Tech Needs | Low | Higher |
Best for Business Size | Small | Medium to large |
Periodic systems are easy and cost-effective, making them ideal for small setups. Perpetual systems, in contrast, provide accurate real-time data through technology and automation, making them ideal for larger businesses with more complex operations.
Ask yourself these questions:
If you answered “yes” to these, the periodic inventory system likely fits your needs. You can add simple stock tracking and still keep costs low. As your business grows, you can later move to a system that offers real-time tracking through software or point-of-sale tools.
The periodic inventory system is a time-tested, simple method for businesses that don’t need constant inventory updates. It uses occasional physical counts and basic math to figure out costs and stock levels. When speed and tech aren’t a priority, it offers a practical way to stay in control. As your business expands or needs more detail, you can reassess and upgrade. For now, periodic might just be the right fit.