The Periodic Inventory System: The Disadvantages And Advantages

Most likely you did not have a formal system for taking orders and handling paperwork

when you first started your business.However, as the company grew you knew that you could no longer walk around with business information in your head.You need a formal system, if you want to be profitable in the future.You must create a formal system.

You will have to decide upon a good inventory system.Will you settle upon perpetual or periodic?Quite naturally, each one will have both good and bad features.The real difference between the two is how they are updated.The perpetual inventory system updates information consistently.Whereas the periodic inventory system only updates information once a physical count has been done.But, this article will talk about the periodic inventory system.

The periodic inventory system is just changed when there is a new physical inventory.This takes place during the interval of time when inventory is counted.This can be done weekly, monthly or yearly.Info is not up to date in the accounting records.Information is not updated when product is ordered, received or shipped.Although this is a definite con of using a periodic system, it is something that many first time business owners are willing to endure.

With a periodic inventory system, you dont need an expensive inventory management software package in order to conduct business.Info is not updated on a regular basis, so it would probably go to waste.Sales are made and orders are placed, but your records will not reflect this until the inventory count.This could be a week, months or even a year before your records are updated to reflect the correct inventory amount.

If you have a small company, this type of inventory system might be perfectly fine.However, if your company is mature and has built up a list of buying customers, then you might not find this kind of system suitable for your needs.You need a real time system.

The best benefit is that you will not dish out up front money on an inventory management software system. You could just use an excel spreadsheet.No, you will not have to consistently key information into the system, but this might become a hassle in the end.

But, there are also cons.First, the inventory is never accurate.Tracking inventory is hard.The system is only updated the time of inventory.This can become very stressful if you have a large company that has a lot of business transactions.

Basically, inventory systems are good.But, you have to pick which one.

by: Darren Folkes

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