Perpetual vs Periodic Stock: Which Gives You Better Financial Accuracy?

One of the most common sources of confusion in financial reporting comes from how businesses value and manage their stock (or inventory).

If you’ve ever wondered why your profit and loss doesn’t seem to align with your balance sheet — or why your cost of goods sold (COGS) looks inconsistent — it could be because of the stock valuation method your business uses.

The two primary methods are Perpetual Stock and Periodic Stock.

In this article, we’ll break down:

• What each method means
• How they affect your financial statements
• A real-world example comparing the two
• Why some businesses still choose periodic (even though perpetual seems superior)

Let’s dive in.

→ What Is Perpetual Stock?
→ One Day of Perpetual Stock
→ What is Periodic Stock?
→One Day of Periodic Stock
→Key Differences at a Glance
→ Why Do Some Businesses Still Use Periodic Stock?
→ So, Which Method Should You Use?
→ Key Takeaway

What Is Perpetual Stock?

As the name suggests, perpetual stock means your inventory records are constantly updating. Everytime stock is bought, sold, or consumed.

Each purchase increases your stock value, and each sale decreases it. Your system 'knows' the real-time value of your inventory at any given moment.

In Financial Terms:

• Balance Sheet: Your Stock on Hand figure changes with every transaction.
• Profit & Loss: You'll see Cost of Goods Solds (COGS) recorded immediately with each sale.

This means your profit, margin, and gross performance are always up to date.

One Day of Perpetual Stock

Let's assume the following:

• Opening Stock: $100,00
• Purchases During the Day: $12,000
• Sales Revenue: $30,000
• Value of Goods Sold: $15,000

Calculation:

Opening Stock $100,000

+ Purchases: $12,000

- Goods Sold: $15,000
= Closing Stock Balance: $97,000

Your Balance Sheet now shows $97,000 stock on hand.

Your Profit & Loss shows:

• Sales: $30,000
• COGS: $15,000
• Gross Profit: $15,000 (50%)

This is why perpetual stock systems are so powerful - you get live data on business performance without waiting for a stocktake.

What is Periodic Stock?

Periodic Stock takes the opposite approach. Instead of updating inventory in real time, your stock value stays the same until the end of a period. This could be monthly, quarterly, or annually.

Every time you buy materials or goods, they're recorded directly as an expense in your Profit and Loss (not your balance sheet).

Your stock on hand only gets adjusted when you do a stocktake or manual stock adjustment.

In Financial Terms:

• Balance Sheet: Stock on hand stays fixed until you update it.
• Profit & Loss: You’ll see Purchases instead of Cost of Goods Sold.

This means your reported profitability during the month may not accurately reflect your actual performance — until the stocktake happens.

One Day of Periodic Stock

Using the same example:

• Opening stock: $100,000
• Purchases: $12,000
• Sales: $30,000
• Goods sold value: $15,000

Your Balance Sheet still shows $100,000 stock until you update it.

Your Profit & Loss shows:

• Sales: $30,000
• Purchases: $12,000
• No COGS line (yet)

Your margin is unknown until you do a stocktake or adjustment.

When you eventually update your stock to the accurate $97,000 closing value, your Profit & Loss will look like this:

Opening stock: $100,000

+ Purchases: $12,000

– Closing stock: $97,000

= COGS: $15,000

Now your reports align with the perpetual method — but only after the adjustment.

Key Differences at a Glance

Perpetual vs Periodic

Why Do Some Businesses Still Use Periodic Stock?

If perpetual is more accurate, why doesn’t everyone use it?

Because accuracy comes at a cost.

Perpetual systems require:

• Robust accounting software integrations
• Reliable data entry (every purchase and sale must be tracked)
• Consistent reconciliation between operations and finance

Smaller businesses, or those without integrated ERP systems, often stick with periodic methods because they’re simpler to manage — even though they delay true financial accuracy.

So, Which Method Should You Use?

If you’re serious about understanding your margins, managing cash flow, and scaling sustainably, perpetual stock wins hands down.

However, periodic might suit you if:

• You’re early in your business journey
• You don’t carry large volumes of stock
• You only need accurate results at month-end or year-end

At CFO Dynamics, we often help clients transition from periodic to perpetual systems — and the improvement in visibility, control, and decision-making is night and day.

Key Takeaway

Perpetual stock gives you real-time clarity.
Periodic stock gives you simplicity — but at the expense of insight.

If your stock reporting feels off, your margins seem inconsistent, or your P&L doesn’t “feel right”, there’s a good chance your inventory method is the culprit.

We’ll explore the pros and cons of each system in our next article — including which method is best suited to your business type.

Subscribe to our newsletter

For more tips on increasing revenue and profitability, sign up to our newsletter for business owners, leaders, and finance team managers. Each week, you'll get practical, no-fluff tips and insights in short, easy videos. No corporate jargon, no time wasting. Sign up now.