Periodic inventory is a key process for any company in the retail, manufacturing, or services sector to ensure that their physical inventory and accounting records match. This process is used to accurately record the cost of goods sold, accurately track inventory levels and calculate other costs related to the operation of the business.
Periodic inventory is typically conducted annually, however, some businesses might conduct it more or less frequently depending on the size of their inventory and the accuracy of their accounting records. Regardless of how frequently a business chooses to conduct their periodic inventory, it is a time-consuming and labor-intensive process.
When conducting a periodic inventory, it is important that the business begin by setting up a clear plan of action. First, employees should be briefed on the process and timed to make sure all tasks are completed efficiently. Next, physical inventory should be counted, tagged and recorded accurately. In order to ensure accuracy, a double-checking system should be in place - for example, one employee counts the items and another employee checks the count or two employees count the same items and compare their results.
In addition to counting the physical inventory, it is important to compare the physical count to the accounting records. As part of the process, differences between the two should be identified, analyzed and resolved. This process is important because it helps to ensure that the business does not over or understate their inventory levels.
Finally, periodic inventory is completed by recording the results in the company’s inventory tracking system. This process is important to help the company understand their true inventory levels at any given time.
Periodic inventory is a time-consuming and labor-intensive process, but it is necessary. Accurate inventory is important for businesses to be able to track the cost of goods sold, plan for their future orders, and manage their inventory levels. As such, regular periodic inventory is essential for the success of any business.
