Periodic vs perpetual inventory
Periodic inventory waits for a physical count and derives cost of goods sold as a balancing figure; perpetual inventory updates the stock record after every purchase and sale.
See it move
With opening inventory of €10,000 and purchases of €40,000, goods available total €50,000. The perpetual system expects €12,500 of closing stock, but a count finds only €12,000, revealing €500 of shrinkage. The periodic system has no expectation to compare against: it computes cost of goods sold as €50,000 minus €12,000, or €38,000, absorbing the loss silently.
The formula
Variables
- Cost of goods sold (€)
- Opening inventory (€)
- Purchases (€)
- Closing inventory (per physical count) (€)
How a periodic system derives cost of goods sold as a balancing figure after a physical count, with no per-transaction record.
Check yourself
A business using a periodic inventory system has opening inventory of €8,000 and purchases of €52,000 during the year. A physical count at the year end values closing inventory at €15,000. What is cost of goods sold for the year?