periodic inventory
Periodic Inventory is a stock counting method where a business only checks and records how much stock it has at set intervals, not after every single sale.
In plain English
Every December, before the Christmas rush proper starts, you will see shop owners at Balogun or Alaba pulling everything down from the shelves. They count sachets, boxes, cartons, one by one, writing figures into a notebook or an Excel sheet. Nobody has been doing this daily. They only stop to count at set times, maybe end of month or end of year, and in between they just sell and sell and trust that the books will balance later.
That is Periodic Inventory in its full glory. The business does not track stock movement in real time. It buys goods, records the purchase, sells goods, records the sales revenue, but it does not update the inventory figure and cost of goods sold after every transaction. Instead it waits, then does a physical count at intervals, maybe monthly, quarterly, or once a year, and uses that count to work out how much stock was sold in between.
Contrast this with a big UK supermarket chain like Tesco, where every item has a barcode and the moment it is scanned at the till, the stock system updates instantly. That is a perpetual system, the opposite of periodic. Most large companies now lean towards perpetual because software makes it cheap and easy, but plenty of small and medium Nigerian businesses still run periodic simply because counting daily is not practical when you are one person managing a shop, a phone, and a queue of customers.
The formula behind periodic inventory is simple. You take your opening stock, add purchases made during the period, and subtract the closing stock you counted. Whatever is left is treated as cost of goods sold, the value of what left your shelves, whether through sale, spoilage, or even theft you never noticed.
This is why periodic inventory can hide problems. If ten bags of rice go missing from a warehouse in March but you only count stock in December, you will not catch that loss until the year end count, and by then the money is long gone and the trail is cold.
A provisions store starts the month with ₦800,000 worth of stock, buys another ₦500,000 worth of goods during the month, and at month end counts what remains on the shelves at ₦600,000. Cost of goods sold for the month is 800,000 plus 500,000 minus 600,000, which comes to ₦700,000 worth of goods that left the shop, whether sold, spoiled, or missing.
Questions people ask
Is periodic inventory still allowed under accounting rules like IFRS?
Yes, IFRS does not force a business to use one method over the other. What matters is that the figures reported are accurate and consistent, so a small business can use periodic inventory as long as its counts are reliable and its cost of goods sold calculation is done properly.
Why would a business choose periodic inventory over perpetual inventory?
Cost and simplicity. Perpetual systems need barcode scanners, software, and constant data entry, which suits a supermarket chain but can be overkill for a small shop. Periodic inventory only needs a physical count now and then, so it fits businesses with limited staff or tight budgets.
What is the biggest risk of using periodic inventory?
Because stock is not tracked in real time, theft, spoilage, or errors can go unnoticed for months. A business only discovers the problem at the next count, by which time it is much harder to trace what actually happened and when.
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