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:
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
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:
This means your profit, margin, and gross performance are always up to date.
Let's assume the following:
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:
This is why perpetual stock systems are so powerful - you get live data on business performance without waiting for a stocktake.
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:
This means your reported profitability during the month may not accurately reflect your actual performance — until the stocktake happens.
Using the same example:
Your Balance Sheet still shows $100,000 stock until you update it.
Your Profit & Loss shows:
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.
If perpetual is more accurate, why doesn’t everyone use it?
Because accuracy comes at a cost.
Perpetual systems require:
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.
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:
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.
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.
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.