Periodic Inventory System
For some businesses, it is more practical to employ a periodic inventory system because the process of performing a physical inventory count occurs less often. Physical inventory counts consume many resources and can temporarily hold up sales and operations.
What is a periodic inventory system?
Under a periodic inventory system, the inventory count only reflects the number resulting from a physical inventory count and the total amount of sales at the time that physical inventory is performed. It does not include work in progress, nor does it subtract inventory as items are sold the way a perpetual inventory system does.
The accountant will update the ledger following the physical inventory count by reconciling the actual count with the amount shown in the records.
What are the benefits of using the periodic inventory method?
If you are wondering why use a periodic inventory system, if you have a choice, here are some considerations:
- Compared to the perpetual inventory method, the periodic method is done less frequently (monthly, quarterly, or yearly) and can be more practical for smaller businesses with less inventory.
- The periodic inventory system does not require accounting for raw materials, work in progress, or finished goods.
SOS Inventory can manage both the perpetual and periodic inventory methods. The method you choose is a decision between you and your accountant which should consider your size, potential and desire for growth. How does a periodic inventory system work for your business? If periodic system accounting does not hinder the company from achieving its goals, the business accountant may recommend it.
The disadvantage of the periodic inventory system is that the longer the business goes without updating the count, the more likely there will be a big discrepancy between the actual count and what is shown in the ledger. Until reconciliation is performed, the ledger will reflect the counts as of the last physical inventory count. Cost of goods sold in between inventory counts is only an estimate.
Waste or obsolescence cannot be accounted for in between physical inventory counts, so the discrepancies can be substantial. If your goal is to strive for lean inventory management, that process will be more difficult if you cannot pin down the causes of waste and work to reduce them.
In between physical inventory counts, sales are not considered in the inventory count. The cost of goods sold is a figure that gets updated against sales immediately after the results of the inventory count are updated.
SOS Inventory arms you with the tools you need to use a periodic inventory system to best suit your business. SOS was designed for small businesses to be easy-to-use and implement while offering features that let your business grow. Once you’ve completed your physical inventory count, you can upload new counts and costs to your account, creating cost adjustments to carry over to your QuickBooks Online account. API synchronization ensures the updated figures carry over the QuickBooks Online account for matching data in your records and on your shelves.
And if you wish to transition to a perpetual inventory system, SOS Inventory will support your efforts with real-time data at every access point.
No matter the accounting method, SOS Inventory gives you all the tools you need to track your inventory every step of the way from the time you receive it through delivery to your customers.