This video discusses the periodic inventory method. Whereas firms using the perpetual inventory method continuously adjust the inventory balance each time they buy or sell inventory, firms using the periodic inventory method instead track inventory by performing a count of inventory at the end of each period. Inventory that is purchased throughout the year is temporarily recorded to a “Purchases” account and Cost of Goods Sold is computed at the end of the period via the follow equation:

Beginning Inventory + Purchases – Cost of Goods Sold = Ending Inventory