BUS 591 Week 3.docx - Present a detailed explanation of the...

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Present a detailed explanation of the recording of purchases under a perpetual inventory system. Use hypothetical figures to illustrate the perpetual inventory system. After presenting your examples, discuss how a perpetual inventory system is different from a periodic inventory system. Your answer should illustrate understanding of the perpetual inventory system, and include a well-thought out response. A perpetual inventory system maintains detailed records of the cost of each inventory purchase and sale. It shows the inventory on hand for each item. This would be similar to a clothing store that keeps inventory of items such as shoes, shirts, and pants. Anytime one of these items is bought like a pair of pants, the inventory should show one less pair of pants that the total amount was before it was purchased. They also determine the cost of goods sold each time a sale happens. Periodic inventory systems do not keep detailed inventory records of goods on hand throughout the period. They determine the costs of goods sold at the end of the accounting period periodically. They determine the costs of goods at the beginning of the accounting period and then add to the cost of goods purchased. Next, they subtract the cost of goods on hand at the end of the accounting period. Perpetual Inventory System June 1 Purchase of Merchandise on credit Inventory 2500 Accounts Payable 2500 June 5 Freight costs on purchases Inventory 200 Cash 200 June 10 Purchase returns and allowances. Accounts Payable 250 Inventory 300 June 20 Payment on account with a discount. Accounts Payable 3800 Cash 3720 Inventory 80
Periodic Inventory System Perpetual systems use a daily running log of materials sold on as they are being sold. This system is typically used for stores that sales expensive things such as a car dealership or a jewelry store. Anything missing will hurt the stores financially so it is important for them to track everything as they come in and as they go out.

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