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Choosing an inventory method

Before filling out your inventory, it's important to consider the kind of items you sell — are they slow-moving items that are easy to count manually, or do you buy and sell them so quickly it's difficult to keep track of how many you have? Depending on the answer to this you'll use either a perpetual or a periodical (also known as physical) inventory method. Don't worry about the terminology, it's a lot easier than it sounds.

Perpetual inventory:

  • is best for businesses with high-volume sales where physical inventory counts are time-consuming and costly

  • can also work well for smaller businesses, as it ensures more accurate bookkeeping and can easily be scaled up as the business grows

  • automatically updates stock quantities in real time for each sale and purchase

  • gives you an instant view of the quantity of goods on hand, enabling you to plan restocking

  • almost completely reduces human errors through automation.

Periodical inventory:

  • is best for businesses that sell low-volume products that can be easily counted, such as cars or artwork

  • requires that items are tracked by a periodical physical count, like at the end of the financial year

  • means you need to create journals to report the value of stock you have on hand

  • involves manual processes, so it can be tedious, time-consuming and prone to errors.

Try perpetual inventory

As perpetual inventory has clear advantages over periodical inventory – and because perpetual inventory for up to 10 items is included with your MYOB Business subscription – we recommend that you give perpetual inventory a go, perhaps testing it with a few items if you're not sure.

Once you use an item in a transaction, you can't change it's inventory method – see the FAQs below.

If you're still not sure which method to choose, check with your accounting advisor.

Using perpetual inventory


When a business uses the perpetual inventory method, they're continually tracking the monetary and physical movement of their stock; so, their inventory balance will always be up-to-date and have less reliance on physical inventory counts.

If you want to use the perpetual inventory method for an item, you need to make sure you check I track stock for this item in the Inventory section of the item.

I track stock for this item

You also need to choose an asset category for tracking inventory and complete the Buying and Selling details sections of the item. For more information on setting up your items, see Creating items.

When using a perpetual inventory in MYOB Business, your inventory's monetary value is tracked using the average costing method.

Unlike other valuing methods, such as First in First Out (FIFO), the average costing method values your inventory by calculating its weighted average value, using the formula: Average Cost = Total Value of the item ÷ Total Quantity of items. Let's take a look at an example of how this would work in everyday business.


Let's say you purchase 10 wine glasses for $10.00 each. This will result in an average cost of $10.00 per item. The following day, 10 more wine glasses are purchased, this time for $12.00 each. Your inventory looks like this:

  • Tick

    Total Quantity of wine glasses: 20

  • Tick

    Total Value of wine glasses: $220.00

  • Tick

    Average Cost: $11.00 ($220.00÷20)

From this example, you'll notice your average cost rose by $1.00 after purchasing the second lot of glasses. This number will be automatically calculated and updated after each purchase. Another transaction that can impact the average cost is an inventory adjustment.

Using periodical inventory


Under a periodical (or physical) inventory method, an inventory balance is recorded only after a physical inventory count.

If you want to use the periodical inventory method in your MYOB Business, you need to make sure you do not check I track stock for this item, but rather I Buy This Item and I Sell This Item when creating an item.

Item set up for periodical inventory

Recording your inventory periodically requires just a few more steps each time a physical stocktake is conducted. For more information on recording a periodical inventory, see Periodical inventory. Before implementing periodical inventory, you should discuss its suitability with your accounting adviser.

What's next?

Once you've decided which inventory method to use, see our Inventory help topic to learn what else you can do and how to set up your inventory items.


What if I need to change my inventory method?


You can only change the inventory method an item uses if you haven't used the item in a transaction.

For example, suppose you create an item that you buy and sell, by selecting the options, I buy this item and I sell this item, but you don't want to track stock levels for it and so you don't select the option, I track stock for this item:

Item set up for periodical inventory

If you then use that item in a purchase or sale transaction, those selections are locked in and you're not able to later select I track stock for this item. You could create a new item with similar details and track the stock for it. For more information, see Updating items to use stock tracking.

Are there additional fees for using inventory in MYOB Business?


With your MYOB Business Lite or MYOB Business Pro subscription, you can use perpetual inventory (that is, track the on-hand quantity) of up to ten items. So, you can set up ten items in MYOB Business with the I track stock for this item option selected for no additional cost.

If you want to set up more than ten items with the I track stock for this item option selected, you'll need to add Premium Inventory to your subscription. For more information, see Add Premium Inventory.

There are no additional fees for using periodical inventory and no limits on the number of items you can set up.