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Periodic is what most small businesses use.

Once a year, or whenever (periodically), a count is done, and that is how inventory levels are accounted for. When goods are purchased, the purchase price (the cost of the goods) is just dumped straight into a COGS account, rather than into an inventory (asset) account as happens with perpetual inventory (which moves the cost of goods from inventory (asset) to COGS when a sale occurs).

Perpetual Inventory is continually monitored (the word perpetual means continual), so at any given time you can tell how much of each item you have on hand, because you are tracking every stock movement in real time. Companies that have RF scanners etc. are able to do this fairly easily with the technology.

With periodic, you just do a count and adjust the levels through your accounting system, with the difference in sales of the item and actual levels on hand, being allocated as "shrinkage" (expense).

Sure, there's variations on that (like shrinkage being a COGS account), but that's basically it. Perpetual allows you to know what you have on hand at all times, while periodic relies on physical counts.

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Q: Difference between perpetual inventory system and periodic inventory?
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What is a difference between periodic inventory and perpetual inventory?

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What is the difference between periodic inventory and perpetual inventory?

Periodic inventory method calculate ending stock at the end of the accounting period, which could be Month to Date or Year to Date, while Perpetual inventory system calculates the ending stock on a continuous basis after each transaction (Purchase or Sell). Within Retail industry, periodic inventory method used for inventory valuation at the stores, whereas distributer like SuperValu (in US) follows perpetual inventory method to track inventory in their distribution centers. As a best practice, some of the retail companies are using perpetual accounting method to track inventory available in warehourses and distribution centers. In an idealistic world, perpetual inventory method can provide the true and real time inventory information, however due to complexities in consolidating all the purchases, sales, shrinkages and other market factors, it is advisable for retail companies to follow periodic accounting method to analyze and review the results before presenting the inventory valuation results to internal and external agencies like Shareholders, Income Tax Authorities, et el.


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What is a difference between periodic inventory and perpetual inventory?

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