Periodic Inventory System
A periodic inventory system is a method of tracking inventory in which quantities come from physical counts at set intervals and cost of goods sold is calculated from those counts rather than recorded with each sale.
Why it matters for ecommerce brands
A periodic system leaves you without a reliable stock figure between counts, so shrinkage and margin problems show up only at period end. Cost of goods sold comes from the counts: beginning inventory plus purchases minus ending inventory. For example, starting a quarter with $50,000, buying $30,000, and counting $35,000 at the end gives $45,000 of COGS, with no way to tell how much was theft or damage. Some small brands still use it for accounting, but it is unsuitable for multichannel selling, where storefronts need live counts.
Common questions
- What is the main drawback of a periodic inventory system?
- You do not know your true inventory or cost of goods sold between counts, so stockouts, shrinkage, and margin problems only show up at period end.
- How is cost of goods sold calculated under a periodic inventory system?
- COGS equals beginning inventory plus purchases during the period minus ending inventory from the physical count. Anything lost to shrinkage ends up in COGS, since it is missing from the ending count.
- What is the difference between periodic and perpetual inventory?
- A perpetual system updates quantities and values with every receipt and sale, giving a live balance. A periodic system updates only when you count, so records are accurate just after each count.