Periodic Inventory System vs Perpetual Inventory System It is beneficial for large organizations only if the number of stock-keeping units is low to apply the relevant controls and ensure the proper valuation.When the business organization is small, the periodic inventory system proves beneficial as the small business does not maintain double-entry books or a perpetual inventory system.Calculate the COGS and suggest how the sales can be derived, and verify that there is any pilferage or loss of inventory. The purchases made during the year are $ 2,500,000, and after physical verification, it is found that the company had an inventory of $ 650,000 as the company follows the periodic inventory system. ExampleĪn Ltd has the opening stock having a value of $ 500,000. Accordingly, the cost of goods sold is calculated by adding opening inventory and purchases by subtracting closing inventory from it.

Under this method, the opening inventory is the value of last year’s closing inventory, purchases are recorded, and closing stock is valued based on a physical count. Instead, the purchases are entered as purchases account debit, and payable account credit and inventory are valued by the physical count method. The purchases made during the year are not recorded in the computer system as most periodic inventory systems users maintain accounts on a single entry basis. Start Your Free Investment Banking Courseĭownload Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others How Does It Work?

Periodic inventory definition