The periodic inventory system is a method used by warehouses to help businesses handle their inventory. This article will explore the specifics of the periodic inventory system, discussing its pros and cons, and how SotaERP software can efficiently adopt and manage this system.
I. What is Periodic Inventory System?
A periodic inventory system is an inventory management valuation method to determine the cost of goods sold (COGS) for accounting and financial reporting purposes. As its name implies, this solution requires physically taking inventory levels at designated periods.
Since inventory counts happen at the end of an accounting period, you must rely on estimates to understand COGS during intervals. When ending inventory is determined, you use it to adjust estimates to reflect actual counts.
II. What is Periodic Inventory Method?
The periodic inventory method involves physically counting and recording inventory at specific intervals, typically at the end of each accounting period. It relies on manual record-keeping and calculates the cost of goods sold (COGS) based on the beginning inventory, purchases, and ending inventory.
III. Pros and Cons of the Periodic Inventory Sytem
Deploying a periodic inventory system can prove advantageous, especially for smaller companies. It’s undoubtedly cheaper to implement and maintain than a perpetual inventory system, and because of its simplicity, it doesn’t require extensive employee training.
Periodic Inventory System Pros
- It’s much cheaper. No software costs, no need to train employees to use a POS system.
- It’s a system you can start using without any major preparation, and you can set the period measured to fit your company’s needs.
- It’s simpler to use, as long as your business is small.
Periodic Inventory System Cons
- You can’t get a truly accurate representation of your inventory until the accounting period is over
- The larger your company grows, the less accurate and useful this system becomes
- The reliance on physical inventory audits also makes this system more time-consuming the larger you grow
- Management has less direct control of inventory levels
IV. Periodic Inventory System in SotaERP Solution
Firstly, SotaERP software simplifies the activation of the periodic inventory system with a single step, accomplished by selecting the 'Manual' option for inventory valuation.
Secondly, SotaERP software facilitates the establishment of automated accounting processes. These processes entail recording the initial inventory value, additions to inventory throughout the period, and the final inventory value at period-end, adhering to the principles of the periodic inventory method. This functionality streamlines accounting procedures, lessening the reliance on manual inputs and thereby mitigating potential errors arising from human involvement.
Third, SotaERP's inventory management application provides a range of choices for inventory criteria, enabling businesses to seamlessly adapt to diverse inventory strategies. For instance, users can organize inventory based on Product, Location, Storage Category, and additional parameters.
V. Choosing the Right Inventory Management System for Your Business
Here are the key points to take into consideration when choosing an inventory management system
- Timing: Recognize signs indicating the need for an automated system, such as frequent overselling, inventory discrepancies, and excessive time spent on manual tasks rather than business expansion
- Integration: Compile a list of essential integrations like ecommerce platforms, marketplaces, shipping, and POS systems. Ensure seamless integration without the need for additional software managed by external parties. Alternatively, check for an open API for custom integrations.
- Scalability: As your business grows, so will your inventory management needs. It is essential to choose a system that can scale with your business to avoid the hassle of switching systems in the future.
- Usability: Consider ease-of-use, especially for less tech-savvy staff. Ensure the software's user interface is intuitive and easy to learn.
VI. Conclusion
SotaERP is a comprehensive inventory management solution that supports periodic inventory system, automated accounting, various options for inventory tracking. This helps improve processes and enhance business efficiency. You need to consider whether your business's inventory management process is suitable for periodic inventory method or perpetual inventory method to make the appropriate choice.