Periodic stock taking – What is periodic stock taking?
Periodic stock taking – also known as periodic stock management or a periodic inventory system – is a type of inventory valuation whereby a business conducts a physical count of the inventory at specific intervals.
Want to find out more about stock management? Check out our entry on perpetual stock taking and decide which system could work best for your business.
Periodic stock taking lets a company know the beginning and ending inventory within an accounting period but – unlike other methods of stock management – does not track inventory on an ongoing basis.
The ending inventory is only updated after a physical inventory count has been conducted. As physical inventory counts are time-consuming, these are usually carried out no more than once a quarter or once a year. In between counts, the inventory account shows the cost of the inventory as it was last recorded.
Periodic stock taking in accounting
Under periodic stock taking, all inventory purchases are initially recorded in a purchases – or assets – account. After the physical count of the inventory is carried out, the balance in the purchases account shifts into the inventory account, which is then adjusted to match the cost of the ending inventory.
Why use periodic stock taking?
The periodic stock taking is usually used by small businesses that have a small amount of inventory and do not use an electronic tracking system.
Advantages of periodic stock taking
- For small business with minimal inventory, it is relatively easy to conduct a physical count.
- Carrying out physical counts is cheaper than implementing an electronic tracking system, such as a barcode system.
Disadvantages of periodic stock taking
- Periodic stock taking does not give any information about the cost of goods sold or ending inventory balances between physical counts. You must therefore make estimates which can result in mistakes and errors.
- This method of inventory taking is not feasible or suitable for large companies with larger inventories because carrying out physical inventory counts is so time-consuming.