Periodic Inventory

What is 'Periodic Inventory'

Periodic inventory is a method of inventory valuation for financial reporting purposes where a physical count of the inventory is performed at specific intervals. This accounting method for inventory valuation only keeps track of the inventory at the beginning of a period, the purchases made and the sales during the same period and is recorded under the asset section of the balance sheet.

BREAKING DOWN 'Periodic Inventory'

With this valuation method, it is much harder to track which individual items were destroyed or stolen, but a cross-reference can be made with the sales revenue to get a rough estimate of what was sold versus what was not. Many see this method as being inferior to the perpetual inventory method, which keeps track of inventory at the point of sale.

This system is typically used by small businesses that can't afford or don't need an electronic tracking system (i.e. the bar code system).

RELATED TERMS
  1. Perpetual Inventory

    A method of accounting for inventory that records the sale or ...
  2. Highest In, First Out - HIFO

    In accounting, an inventory distribution method in which the ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors ...
  4. Inventory Reserve

    An accounting entry that represents a deduction from earnings ...
  5. Lower of Cost and Market Method

    A requirement of GAAP in the United States that inventory be ...
  6. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
Related Articles
  1. Investing

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  2. Investing

    Days Sales of Inventory

    Days Sales of Inventory, also called Days Inventory Outstanding, is a key financial measurement of a company's performance pertaining to inventory management. In simple terms, it tells how many ...
  3. Investing

    Understanding Periodic Vs. Perpetual Inventory

    An overview of the two primary inventory accounting systems.
  4. Investing

    How to Calculate Average Inventory

    Average inventory is the median value of an inventory at a specific time period.
  5. Investing

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  6. Investing

    How Does a Perpetual Inventory System Work?

    Perpetual inventory is a system that continually tracks inventory items for quantity and availability.
  7. Investing

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  8. Investing

    Reading The Inventory Turnover

    Inventory turnover is a ratio that shows how quickly a company uses up its supply of goods over a given time frame. Inventory turnover may be calculated as the market value of sales divided by ...
  9. Investing

    AR & Inventory Turnover Is Key For These Sectors

    Accounts receivable and inventory turnover are two important ratios in the current asset category. We will also discuss the key industries that benefit from a thorough understanding of these ...
  10. Investing

    Financial Statements: Working Capital

    By David Harper (Contact David)A recurring theme in this series is the importance of investors shaping their analytical focus according to companies' business models. Especially when time is ...
RELATED FAQS
  1. How do you analyze inventory on the balance sheet?

    Learn how to analyze inventory using financial statements and footnotes by doing ratio analysis and performing qualitative ... Read Answer >>
  2. Why should investors care about the Days Sales of Inventory (DSI)?

    Learn about days sales of inventory and what it measures; understand why an investor would want to know a company's days ... Read Answer >>
  3. Why is it sometimes better to use an average inventory figure when calculating the ...

    For a couple of key reasons, average inventory can be a better and more accurate measure when calculating the inventory turnover ... Read Answer >>
  4. What does a high inventory turnover tell investors about a company?

    Inventory turnover is an important metric for evaluating how efficiently a firm turns its inventory into sales. Read Answer >>
  5. What does inventory turnover tell an investor about a company?

    Find out more about the inventory turnover ratio, what the ratio measures and what the inventory turnover ratio indicates ... Read Answer >>
  6. How does an investor evaluate an inventory turnover ratio for a retail company?

    Understand more about inventory turnover and what it measures. Learn how an investor should evaluate an inventory turnover ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center