Inventory - Periodic vs. Perpetual Systems

What are the 2 inventory counting systems

periodic inventory system & perpetual inventory system

How often is counting in the periodic inventory system?

less frequent, but regularly scheduled (end of month, quarter, year)

How often is counting in the perpetual inventory system?

continuous

How is inventory counted in the periodic inventory system?

physically

How is inventory counted in the perpetual inventory system?

facilitated by computerized system(s)

On counting days, how does the periodic inventory system work?

pay staff or outside labour & close all portions of the store

How do you ensure accuracy with the perpetual inventory system?

do a reconciliation (physical count) at year end to ensure accuracy - differences are usually caused by inventory shrinkage (theft)

Advantages of the periodic inventory system

cheaper set up, easy to do

Disadvantages of the periodic inventory system

• inventory value is not exact between counts

• expensive

• misses inventory shrinkage (whatever isn’t there is assumed as sold)

• human error is more likely

• hard to know when to re-order

Advantages of the periodic inventory system

• up-to-date info always available

• eliminates need for multiple physical counts

• quantifies shrinkage

• pre-set re-order levels

Disadvantages of the periodic inventory system

• expensive to buy / install

• suited to larger companies