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Periodic inventory system However more advanced inventory management systems can add costs and complexity to your operations. For small businesses and entrepreneurs it’s important to know when to choose simplicity over the latest tech. In contrast to highly complex processes the periodic inventory system is easy to implement and costs significantly less. Here’s how it works. What is a periodic inventory system? A periodic inventory system is an inventory valuation where you do a physical inventory count at the end of a defined accounting period.

This can be annually quarterly or monthly. This gives you a predefined schedule for physically Email Marketing List counting your inventory and calculating accounting metrics like the cost of goods sold COGS . The goal of an inventory system is to tell you how much stock you have and to help calculate your cost of goods sold. Cost of goods sold refers to the direct cost of the sold products such as raw materials and labor. It’s an accounting metric that gets reported on financial statements like the income statement . When calculating periodic inventory you’ll also use a metric called cost of goods available. This is the total cost of all items available for sale during the period. So if you have shirts available to sell and they cost to produce your cost of goods available is . If you sell seven of those shirts your cost of goods sold is .



Business owners subtract the cost of goods sold  gross profit which is a measurement of the business’s profitability. How a periodic inventory system works There are a few metrics you will track and use in a periodic inventory method — beginning inventory purchases and ending inventory. A closer look at what each metric includes: Beginning inventory: The total monetary value of the inventory that you had at the start of the accounting period. Purchases: The total amount of money you spent on new inventory during the accounting period. Ending inventory: The total monetary value of the inventory that you have remaining at the end of the accounting period. Here are the steps involved in using a periodic inventory system: Record the beginning inventory value.