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There are two types of inventory processes: perpetual and periodic. Perpetual procedures use point-of-sale scanning equipment to record transactions in real-time, while periodic procedures involve a complete physical count of products at regular intervals. Choosing the right procedure is critical for managing inventory, which can be a major expense for a business. Accurate inventory information is necessary to determine competitive selling prices and plan for new products. Perpetual inventory procedures offer greater efficiency, while periodic procedures are typically used for businesses with lower sales volumes.
There are two basic types of inventory processes, perpetual and periodic, used to track the actual amount of products a business has on hand. Choosing a procedure that works for a specific business is critical since inventory accounts for all products that might be sold. This can be one of the biggest expenses for a business and one of the hardest to manage.
Accurate and up-to-date inventory information is required to determine the competitive selling price for products, including to plan the purchase or production of new products to replace those already sold. The two basic types of procedures can be critical to managing this.
Perpetual inventory procedures often use point-of-sale scanning equipment that allows a business to record transactions in real time. Procedures of this type usually provide a highly detailed record of each sale as it occurs. This procedure is capable of tracking thousands of transactions in a single day of operation. While perpetual inventory procedures generally require a larger initial investment, the greater efficiency it offers can often lead to higher profits.
Up-to-the-minute data provided by perpetual inventory procedures allows managers to monitor product supply levels and order additional inventory if needed. It can also help retail businesses determine which products sell well and which items need to be moved by offering a reduced price or a sale. A company using this procedure must also carry out a periodic physical count of its products in order to reveal losses due to theft.
Periodic type inventory procedures usually involve some type of complete physical count of available products at regular intervals, which can be monthly, quarterly or yearly. In this type of procedure, the total number of products that a business has in its inventory is physically tallied at the end of each accounting period. All products purchased during the following period are added to this total. Another count is then made at the end of each subsequent period and deducted from the previous period’s final total.
The volume of products a company sells each year typically determines the frequency of these periodic inventory procedures. Because this type of inventory can be a time-consuming and resource-consuming event, many businesses hire inventory services to provide the labor and automation needed to count inventory and reduce shutdown time. There is also inventory control software available to speed up the process.
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