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90,000 specific types of merchandise (stock keeping units or
SKU's).3 Sam's clubs carried between 3,500 and 5,000 SKU's.
Wal-Mart received approximately 80 percent of its
merchandise through petitioners' distribution system. Wal-Mart's
distribution centers increased from 6 in 1984 to 10 in 1987.
In the later year, petitioners' total distribution center space
was over 7 million square feet, and each distribution center
received and shipped in excess of 30 million cases of merchandise
a year, the equivalent of 96 trailer loads per working day.
II. Petitioners' Inventory Practice
A. Inventory Systems in General
Inventory accounting requires allocating each period's
cost of goods available for sale between: (1) Cost of goods sold
and (2) the value of ending inventory. Taxpayers may use either
the perpetual or periodic inventory system for this allocation.
Under both systems, the cost of each purchase is recorded
contemporaneously with the purchase, and the revenue from each
sale is recorded contemporaneously with each sale. But for these
similarities, recording differs depending on whether the taxpayer
uses a periodic or a perpetual system.
Under the periodic system, an entry is not made to record
the quantity or cost of an item of merchandise when it is sold.
A physical count is generally performed at yearend to ascertain
3 In general, identical units are one SKU's, and each
different size and brand is a different SKU.
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