![]() ![]() ![]() Accountants typically track inventory by subtracting the cost of goods sold (COGS) from their revenue to calculate gross profit. Related: What Is an Inventory System? (Definition, Types and Benefits) How does a periodic inventory system work?Ī periodic inventory system works by a member of a company performing a physical count of their inventory and recording it in the periodic inventory system. The counting process can be time-consuming, so most companies only perform it at specified intervals, such as at the end of each quarter or at the end of the year. At the end of a specified period, businesses physically count their units of unsold inventory and record their total value to balance the general ledger. They record the cost of the ending inventory in the general ledger to monitor the value of unsold inventory. What does a periodic inventory system do?Ī periodic inventory system is a method that accountants use to determine the value of the physical inventory a company has at the end of a specified period. In this article, we explain what a periodic inventory system does, provide an example, discuss its benefits and offer some challenges to consider when choosing a system for your business. Learning about these systems can help you determine if they can benefit your organization. Periodic inventory systems can be a great way for companies to assess the value of their current stock at regular intervals. For businesses that offer a small selection of products and services to their customers, implementing a periodic inventory system to their accounting strategy may help them monitor their inventory and its related expenses. ![]()
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