Periodic System of Inventory.
The most direct means of determining the physical quantity of
inventory on hand is to count it. An inventory system that establishes
quantities on the basis of recurring counts is known as a periodic system. After
establishing quantities on hand, each unit is multiplied by its unit cost to
determine its inventory value. Cost of sales is a residual amount obtained by subtracting
the ending inventory amount from the cost of goods available for sale:
Beginning Inventory
+ Purchases and Costs of
Production
Goods Available for Sale
− Ending
Inventory
Cost of Sales
A
periodic system is most likely to be used by a small company or for a
department with low-value items that do not warrant more elaborate control
procedures. A periodic system also is used for inventories for which reliable
usage data cannot practicably be generated (e.g., certain supplies and extractive
materials).
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