1. What is Periodic Inventory System?

The Periodic Inventory System is a method of inventory valuation where physical counts are performed at specific intervals to determine ending inventory and cost of goods sold. This contrasts with perpetual systems that track inventory continuously.

2. How Does the Calculator Work?

The calculator uses the basic inventory equation:

Where:

• Beginning Inventory — Inventory count at start of period
• Purchases — Additional inventory acquired during period
• Sales — Inventory sold during period

Explanation: This fundamental equation ensures inventory quantities are properly accounted for at the end of each accounting period.

3. Importance of Inventory Calculation

Details: Accurate inventory calculation is essential for financial reporting, tax compliance, and business decision-making. It affects cost of goods sold, gross profit, and net income calculations.

4. Using the Calculator

Tips: Enter beginning inventory, purchases, and sales in units. All values must be non-negative integers. The calculator will compute ending inventory.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between periodic and perpetual inventory?
A: Periodic counts inventory at intervals while perpetual continuously tracks each sale/purchase. Periodic is simpler but less precise.

Q2: How often should inventory be counted in periodic systems?
A: Typically monthly, quarterly, or annually depending on business needs and reporting requirements.

Q3: What are limitations of periodic inventory?
A: Doesn't provide real-time inventory data, more prone to shrinkage errors, and makes inventory loss harder to detect.

Q4: When is periodic inventory system appropriate?
A: For small businesses with low sales volume, simple product lines, or where cost of perpetual system isn't justified.

Q5: How does this affect financial statements?
A: Ending inventory appears on balance sheet as current asset. Cost of goods sold (beginning + purchases - ending) affects income statement.