Periodic Inventory System

What periodic inventory system covers

Under a periodic system, inventory is not tracked continuously. Purchases are accumulated in a purchases account, and cost of goods sold is derived only at period end as opening inventory plus purchases less closing inventory. It is simpler to operate but gives no running record, so shrinkage is buried inside cost of goods sold rather than identified.

Challenges here cover purchase and sale entries, the closing adjustment, and the cost of goods sold computation.

Where marks are usually lost

• Recording a cost of goods sold entry at the point of sale — that belongs to a perpetual system.
• Leaving out the closing inventory adjustment, so cost of goods sold is overstated.
• Debiting inventory rather than purchases when goods are bought.