

by Owen Pearson Google

Tracking inventory is an essential part of business operations for any company that sells tangible goods. Periodic and continuous reviews are two common methods used to track inventory for accounting and ordering purposes. Policies providing for each type of inventory review have advantages and disadvantages.


Periodic inventory review involves counting and documenting inventory at specified times. For example, a retail store operating under a periodic review policy might count inventory at the end of each month. Continuous inventory review, also known as perpetual review, involves a system that tracks each item and updates inventory counts each time an item is removed from inventory. For example, a retailer may use bar code scanners to record customer purchases and update inventory counts every time a cashier scans a product code.

Advantages and Disadvantages of Periodic Inventory Review

Periodic inventory review reduces the time a business owner or manager spends analyzing inventory counts, which allows more time for other aspects of running the business. However, it may not provide accurate inventory counts for businesses with high-volume sales. The owner or manager must make assumptions between inventory review periods regarding inventory counts. This can make it difficult to ascertain when reordering items is necessary. It also can make accounting less accurate.

Advantages and Disadvantages of Perpetual Inventory Review

Perpetual inventory review permits real-time updates of inventory counts, which can make it easier to know when to reorder items to replenish inventory. This method of inventory review also facilitates accurate accounting, since the inventory system can generate real-time costs of goods sold. The main disadvantage of this type of inventory review is the cost of implementation -- bar code scanners, inventory software and computer systems are all necessary to maintain perpetual inventory review.


The type of inventory review policy appropriate for a business depends on several factors, including the sales volume of the business and the number of employees handling inventory. A sole proprietorship with limited sales may not need to adopt a continuous review policy to maintain a level of accuracy necessary to continue business operations. Conversely, a large retailer with numerous employees handling merchandise may have difficulty maintaining accurate inventory counts under a periodic inventory review policy.

References (1)

  • Accounting Made Simple; Mike Piper

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