Periodic Inventory system

Periodic Inventory System is a method of inventory management where the inventory balance and cost of goods sold are determined at specific intervals of time, rather than continuously. The physical count of inventory is performed periodically, usually at the end of each accounting period.

Features of Periodic Inventory System:

1. Physical Count: Under the periodic inventory system, physical inventory counts are done periodically to determine the ending inventory balance.

2. Cost of Goods Sold: The cost of goods sold is calculated by subtracting the ending inventory balance from the cost of goods available for sale.

3. No Real-Time Inventory Information: Since inventory is only counted periodically, there is no real-time information available on inventory levels.

4. Lower Cost: Periodic inventory systems are generally less expensive to implement and maintain than perpetual inventory systems.

5. Suitable for Small Businesses: Small businesses with low inventory levels may find periodic inventory systems more suitable.

Advantages of Periodic Inventory System:

1. Lower Cost: The periodic inventory system is less expensive to implement and maintain than perpetual inventory systems.

2. Simplicity: The periodic inventory system is simple to use and is suitable for small businesses with low inventory levels.

3. Flexibility: The periodic inventory system is flexible and allows businesses to adjust the frequency of physical inventory counts to their needs.

Disadvantages of Periodic Inventory System:

1. No Real-Time Information: The periodic inventory system does not provide real-time information on inventory levels, which can lead to stockouts and overstocking.

2. Inaccurate Information: The periodic inventory system relies on physical inventory counts, which can be inaccurate due to human error or theft.

3. Time-Consuming: Physical inventory counts are time-consuming and can disrupt business operations.

Conclusion:

The periodic inventory system is a simple and flexible method of inventory management that is suitable for small businesses with low inventory levels. However, it does not provide real-time information on inventory levels and can be inaccurate due to physical inventory counts.