Item that the company sells

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First add up all of the transactions in the purchases account to get the total cost of all purchases. In this example you would get a total purchase amount of + . Next calculate your cost of goods available: Cost of Goods Available = Beginning Inventory + Purchases Cost of Goods Available = + Cost of Goods Available = Finally use the cost of goods available and the value of your closing entry to calculate your cost of goods sold: Cost of Goods Sold = Cost of Goods Available – Ending Inventory Cost of Goods Sold = - Cost of Goods Sold = Periodic inventory management vs.  

perpetual inventory management In a periodic inventory system you use regularly scheduled Email Marketing List physical inventory counts to measure the cost of goods sold and see how much product you have available. The perpetual inventory method uses a computerized system to continuously update inventory records as items move in and out of the business. If you use a periodic system you don’t know the exact number of units you have in stock until the end of the accounting period when you do your physical count of inventory. In contrast the perpetual inventory system gives you real-time inventory counts because it updates each time a unit moves in or out of your inventory. A perpetual inventory system uses point-of-sale software POS software to scan the barcode of each  and adjust inventory levels accordingly.  



So if you sell one item the system will reduce your total inventory level by one right after the sale happens. Advantages of a periodic inventory system The top benefits of a periodic inventory system are: It’s easy to implement. It’s more cost-effective than a perpetual system because it doesn’t require special inventory tracking software. As such the periodic inventory system is most appropriate for small businesses that have smaller inventory balances which makes it easier to do physical counts. By spending less time on inventory tracking businesses can focus on other growth areas such as sales marketing and customer service. Disadvantages of a periodic inventory system There are also some downsides to using a periodic inventory system such as: It doesn’t provide insight into real-time inventory levels.