Perpetual systems are more suitable for these. Inventory Turnover: Businesses with a high inventory turnover will encounter frequent losses with a periodic inventory system. Business Size: Periodic Inventory Systems are more suitable for smaller businesses with small inventory levels.All inventory-related transactions are then recorded in the financial statements of the company.įactors to Consider When Using a Periodic Inventory System.The company calculates the cost of goods sold by subtracting the ending inventory balance from the sum of the beginning inventory balance and the actual cost of purchases made during the accounting period.Ĭost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory.When the period ends, the company physically counts the inventory on hand to determine the ending inventory balance.The company will also record all its purchases during the said period.At the start of the accounting period, the company records the value of the inventory it has on hand from the previous accounting period.The periodic inventory system works in the following steps: Under the periodic inventory method, companies update the inventory only once in a certain accounting period, in contrast to the perpetual inventory system, where an inventory is updated continuously, such as after every purchase or sale. Advantages and Disadvantages of Periodic Inventory Systems.Difference between Periodic and Perpetual Inventory.Which Businesses Use Periodic Inventory Systems?.
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