Periodic inventory is a form of inventory tracking that only requires stock counts at certain times of the year. The count is performed once every quarter or annually and involves counting every piece of inventory and recording the cost. Companies that use this method are not aware of the actual inventory during most of the year. An accurate inventory is important because the cost of the inventory is listed on financial statements, such as the balance sheet.
Clothing stores use periodic inventory because they have a high volume of sales with moderately priced goods. According to Entrepreneur magazine, the average clothing retailer sells $1.7 million worth of merchandise with just 17 employees. This inventory method helps them record the sales without the hassle of constantly updating the cost of each item sold. Since returns can change inventory every day, companies wait until the end of a period to update inventory records.
Grocery stores stock large amounts of small goods. According to the Food Marketing Institute, the average grocery store sells 45,000 items every week, with sales of just over $300,000 per store. Grocery stores save on labor costs by making periodic adjustments of inventory. Saving time is especially important for small and specialty stores, which generally aren’t open 24 hours like large chains. The Food Marketing Institute also reports that grocery stores’ inventory counts tend to suffer due to shoplifting. A periodic inventory helps them improve the accuracy of their inventory records.
Convenience stores also sell a wide variety of small items at low prices. The Small Business Development Center reports that each store has average sales revenue of $883,000 annually and makes an average of 10,000 transactions every week. As with retail stores, their small staffs benefit from the labor cost savings of a periodic inventory system.
Discount retailers, such as Wal-Mart, sell a large selection of goods in warehouse-sized buildings. These companies have automated systems that can handle the constant updating, but many still use periodic inventory. According to the book "Principles of Accounting," bar codes help companies keep track of actual inventory in real-time, but they use periodic inventory because it is less time-consuming and more convenient for the financial department.
