Financial Accounting · Inventories

Inventory Counting and Records: Perpetual vs Periodic Systems

Updated 11 October 2026 · Fact-checked

Inventory counting checks that the physical goods a business holds match its records. A perpetual system updates records after every movement. A periodic system counts at set dates. To solve questions, compare the count to the records, find the difference, explain it, then adjust the records and the accounts.

Understand Inventory Counting and Records

A business needs to know what inventory it holds. It needs this for the statement of financial position, for cost of sales, and for control against loss and theft. Two systems keep track of it.

In a perpetual inventory system, you update the inventory record every time goods are bought, sold or returned. The record shows the expected balance at any moment. In a periodic inventory system, you do not track each movement. You count inventory at the end of a period. Cost of sales is then worked out as opening inventory + purchases − closing inventory.

Even with perpetual records, you still count the goods physically. Records can be wrong. Goods can be stolen, damaged, miscounted or wrongly recorded. A year-end inventory count (a physical count, often called a stocktake) checks this. A continuous count counts a few lines at a time through the year, which avoids shutting the business down.

Good counting needs control. Staff are given written instructions. Count sheets are numbered. Teams of two count, one counts and one checks. Damaged or obsolete items are noted. Goods owned by others, such as items held on consignment for a supplier, are identified so they are not counted as yours. Goods you own but which are held elsewhere are included. Movements of goods during the count are stopped or recorded.

After counting, you reconcile the count to the records. Any difference is investigated. Then the records are corrected to the counted figure, unless the count itself was wrong. Also, if the count is done on a date other than the year end, you must roll the figure forward or back to the year end using purchases and sales in between.

Key formulas to remember

Cost of sales (periodic system): Cost of sales = Opening inventory + Purchases − Closing inventory; Purchases means net of returns and including carriage inwards. Closing inventory comes from the count.
Expected inventory (perpetual record): Record balance = Opening balance + Receipts − Issues; Compare this to the physical count to find the difference.
Inventory difference: Difference = Physical count − Record balance; A negative figure is a shortage (loss). A positive figure is a surplus.
Count date to year-end adjustment: Count before year end: Year-end inventory = Count-date inventory + Purchases after count date − Cost of sales after count date. Count after year end: Year-end inventory = Count-date inventory − Purchases since year end + Cost of sales since year end.; Check whether the count is before or after the year end first. Before year end, add purchases and deduct cost of sales made after the count date. After year end, deduct purchases and add back cost of sales made between the year end and the count date. Convert sales to cost using the gross margin or mark-up.
Cost from sales: Cost = Sales × 100 ÷ (100 + mark-up %), or Sales × (100 − margin %) ÷ 100; Needed to turn sales values into cost when adjusting a count date.

How to solve Inventory Counting and Records questions

Use this method for most questions on counts, records and system types.

1Read what the question asks: a system type, a count procedure, a reconciliation figure or a journal.
2Identify the system. Perpetual means a running record. Periodic means a count only.
3List the figures given: opening balance, receipts, issues, count result, count date and year end.
4If the count date is not the year end, adjust the count figure to the year end using movements in between. Put sales at cost, not selling price.
5Calculate the record balance and compare it with the adjusted count. Find the difference and label it shortage or surplus.
6Check the items that should be excluded or included: goods held for others, goods in transit, damaged goods at net realisable value.
7Choose the answer. For a number entry, give the figure with the correct sign or label. For a journal, correct the records to the count figure.
8Sense check: does the direction make sense, such as a shortage reducing inventory and profit?

Quickest way: Count versus record in three lines

When to use it: Use for number entry or multiple choice questions that give a record balance and a count and ask for the difference or adjustment.

Write: Record = opening + in − out.
Write: Count (adjusted to year end if needed).
Difference = Count − Record. Negative means loss, which reduces inventory and increases cost of sales by that amount.

Common mistakes in Inventory Counting and Records

Treating a periodic system as if it keeps a running balance
The names sound alike and students assume every system updates after each movement.
Fix: Remember: periodic means a count at period end, and cost of sales is a calculated figure. Only perpetual keeps a running record.
Skipping the physical count because perpetual records exist
Students trust the records as accurate.
Fix: Records show what should be there. The count shows what is there. Both are needed, and the count is the check.
Adjusting a count-date figure using sales at selling price
Sales are the figure given, so students use them directly.
Fix: Convert sales to cost using the mark-up or margin before deducting them from the count figure.
Including goods held on consignment or goods the entity does not own
The goods are physically in the warehouse.
Fix: Include only inventory the entity owns. Exclude goods held for others and include owned goods held elsewhere.
Getting the sign of the difference wrong
Students subtract in the wrong order.
Fix: Always do count minus record. A negative result is a shortage and the records must be reduced.
Forgetting to correct the records after the reconciliation
Students stop once they find the difference.
Fix: Adjust the inventory records to the verified count and recognise the loss in cost of sales, or investigate if the count may be wrong.

Worked examples

Example 1

A business uses a perpetual system. The record for a product shows opening inventory of 400 units. It received 1,200 units and issued 1,350 units during the year. The year-end count found 235 units. How many units are the shortage?

Show the solution

Record balance = 400 + 1,200 − 1,350 = 250 units.
Count = 235 units.
Difference = 235 − 250 = −15 units.
A negative difference means a shortage.

Answer: Shortage of 15 units. Reduce the records to 235 units and treat the loss as a cost.

Example 2

A company's year end is 31 December. It counted inventory on 5 January at a cost of $84,000. Between 1 and 5 January, purchases were $6,000 and sales were $15,000. The company sells at a mark-up of 25% on cost. What is the inventory at 31 December?

Show the solution

The count is after the year end, so the formula for a count before the year end does not apply. Use: Year-end inventory = Count-date inventory − Purchases since year end + Cost of sales since year end.
Convert sales to cost: $15,000 × 100 ÷ 125 = $12,000.
Start from the count: $84,000.
Goods bought after year end were not in stock at 31 December, so deduct them: $84,000 − $6,000 = $78,000.
Goods sold after year end were in stock at 31 December, so add them back at cost: $78,000 + $12,000 = $90,000.

Answer: Inventory at 31 December is $90,000.

Exam tips

Know which system is which. Many objective questions only test the definition of perpetual and periodic.
When the count is not on the year-end date, work out whether movements are added or deducted. After year end: deduct purchases, add back cost of sales.
Read how many options the question asks you to select and choose controls such as pre-numbered count sheets, independent checking and stopping goods movements.
In number entry, check units and sign. Say shortage or surplus if the question asks for a type.

Practice questions from Inventories

Inventory Counting and Records in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsAudit of Inventory and Inventory Counting

Inventory Counting and Records: frequently asked questions

What is the difference between perpetual and periodic inventory systems?

A perpetual system updates inventory records after every purchase, sale and return, so a balance is always available. A periodic system relies on a count at the end of a period and calculates cost of sales from opening inventory, purchases and closing inventory.

Why count inventory if you keep perpetual records?

Records can differ from reality because of theft, damage, errors and unrecorded movements. The count checks the records and gives a reliable closing figure for the financial statements.

How do you reconcile an inventory count to the records?

Adjust the count to the same date as the records if needed, then compare it with the record balance. Investigate the difference, then correct the records and account for any loss.

What happens if the count is done before the year end?

You roll the count figure forward to the year end. Add purchases and subtract the cost of sales that happened between the count date and year end, or reverse this if the count is after year end.