The Periodic Inventory System: The Disadvantages and Advantages

By Darren Folkes

Chances are that when you started out in business, you did not have a formal way of handling your accounting books, taking orders, tracking inventory or any other daily business task.But as the company expanded, you realized that you could not leave company data stuck in your head.You need a formal system, if you want to be profitable in the future.If you want to have a successful company that continues to grow on a yearly basis, then you must set these things in place.

You will have to decide upon a good inventory system.Will you settle upon perpetual or periodic?Of course there are major advantages and disadvantages for each system.The way that the two systems are updated really set them apart.The perpetual inventory system updates information consistently.Whereas the periodic inventory system only updates information once a physical count has been done.But, this article will talk about the periodic inventory system.

Periodic inventory is only updated after a certain amount of time.Normally, this is around inventory time.Companies manually count their inventory on a weekly, monthly, bi-yearly or even yearly basis.This means that in terms of the books, the information is not regularly updated.The records do not change, even when the product is shipped or received.Although this is a definite con of using a periodic system, it is something that many first time business owners are willing to endure.

The periodic inventory system will not require a purchase of a costly inventory management software package in order to conduct business.Info is not updated on a regular basis, so it would probably go to waste.Yes, sales are being made, but your inventory system is not updated until the next physical inventory count.This could be a month or even year later.

A smaller company might like this.But, if you have been in business for a while, then this system might not be for your company.You will need a full fledge system that is capable of keeping track of your inventory in real time.

One of the best things is that you will not have to spend money on an inventory management software system in the very beginning. You could just use an excel spreadsheet.You don't have to keep feeding info to a system.

However, there are flaws to this system.First, the inventory is never accurate.It is hard to track sales.The system will not be updated until the next formal physical inventory count.This can become very stressful if you have a large company that has a lot of business transactions.

Simply put, it is good to have an inventory system.But, you have to pick which one.

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