Perpetual vs periodic inventory: the difference, and which one your Shopify store runs
A perpetual inventory system updates stock and cost of goods sold with every purchase and sale. A periodic system counts stock at the end of the period and works out cost of goods sold as beginning inventory + purchases − ending inventory. Shopify is perpetual for units: quantities change with each order, receipt and adjustment. It is not perpetual for cost: each variant keeps one Cost per item, and its profit reports use whatever cost the variant had when it sold.
Perpetual vs periodic, side by side
| Perpetual | Periodic | |
|---|---|---|
| Stock records | Updated with every purchase, sale and adjustment | Updated when you count |
| Cost of goods sold | Recorded at each sale | Worked out at period end: beginning + purchases − ending |
| Purchases | Added to inventory as received | Kept in a purchases account until the period closes |
| Shrinkage | Shows up as the gap between the books and a count | Hidden inside cost of goods sold |
| Margin during the month | Known as you go | Known after the count |
| Counting | Still needed at reasonable intervals, to correct the books | The count is the method |
A worked example
Beginning inventory $12,000, purchases $31,500 with freight. The perpetual records charged $27,900 of cost to sales during the month. The month-end count values the shelf at $15,000.
| Amount | |
|---|---|
| Perpetual: cost of goods sold recorded at each sale | $27,900.00 |
| Periodic: $12,000 + $31,500 − $15,000 | $28,500.00 |
| Difference: stock that left without a sale | $600.00 |
The periodic figure is larger because it includes everything that left: sold, lost, stolen, damaged or miscounted. A perpetual system shows the $600 on its own, so you can see it and record why.
Journal entries in each system
- Perpetual, at each sale: debit Cost of goods sold, credit Inventory, at the cost of the units sold.
- Periodic, at period end: purchases sit in their own account during the month; the closing entry clears purchases and sets inventory to the counted value, and the difference is cost of goods sold (AccountingTools).
Both with figures: COGS journal entry, debit or credit.
Which one your Shopify store runs
- Units: perpetual. With inventory tracking on, orders, fulfillments, transfers, receipts and manual adjustments all change quantities, and the Inventory adjustment changes report lists each one (Shopify Help).
- Cost: a fixed number. Each variant has one Cost per item. Shopify calls it static data: it stays fixed when you receive stock (Shopify Help).
- Cost of goods sold: recorded at each sale, at that fixed number. Profit reports use the Cost per item the variant had when it sold, and leave out variants that had none.
So Shopify gives you perpetual quantities with a cost that only changes when someone edits it. If you buy at a new price and nobody updates Cost per item, the perpetual cost of goods sold is wrong by the price change on every unit sold.
Counting still matters
The IRS accepts a perpetual or book inventory kept with sound accounting practices, but you must take a physical inventory at reasonable intervals and adjust the books to match (IRS Publication 538). The count is what turns the $600 above into a recorded loss rather than a mystery.
How True COGS fits
- Makes cost perpetual too: each received purchase order or transfer updates the weighted average, or FIFO layers on paid plans, and writes it to Cost per item, so the next sale is costed at what you paid.
- Records stock you lost, with a reason, at what it cost that day. The month-end close lists those losses on their own line.
- Month-end close on paid plans: opening, purchases, cost of goods sold and closing, checked to balance.
Related guides
Questions merchants ask
What is the difference between perpetual and periodic inventory?
A perpetual system updates inventory and cost of goods sold with each purchase and sale. A periodic system counts stock at the end of a period and calculates cost of goods sold as beginning inventory + purchases − ending inventory.
Is Shopify a perpetual inventory system?
For quantities, yes: with tracking on, Shopify changes a variant's quantity with each order, transfer, receipt and adjustment. For cost, no: each variant has one static Cost per item that does not change when you receive stock.
Which is better, perpetual or periodic inventory?
Perpetual tells you stock and margin as you go and shows shrinkage when you count. Periodic is simpler but gives cost of goods sold only after a count, and hides losses inside it.
Do I still need a stock count with a perpetual system?
Yes. The IRS says a perpetual or book inventory must be checked by a physical inventory at reasonable intervals, with the book figures adjusted to match.
Can I use a perpetual inventory for taxes?
The IRS accepts a perpetual or book inventory if it is kept with sound accounting practices, charged with the actual cost of goods bought and credited with the cost of goods sold.
Try True COGS free. True COGS is an inventory costing app for Shopify by Nexus Logic Systems. It records the price you paid on every delivery (a received purchase order or a transfer), with its share of freight and duty on paid plans, keeps every price with its date, and writes your moving weighted average cost, or FIFO cost on a paid plan, to Shopify's Cost per item. It is free for up to 25 variants with a cost on record; paid plans start at $29 a month or $290 a year.
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