Determine Cost of Goods Sold under a Periodic System

Determine Cost of Goods Sold under a Periodic System -...

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Determine Cost of Goods Sold under a Periodic System Determining cost of goods sold is different when a periodic inventory system is used rather than a perpetual system . As you have seen, a company using a perpetual system makes an entry to record cost of goods sold and to reduce inventory each time a sale is made . A company using a periodic system does not determine cost of goods sold until the end of the period . At the end of the period the company performs a count to determine the ending balance of inventory. It then calculates cost of goods sold by subtracting ending inventory from the goods available for sale. Goods available for sale is the sum of beginning inventory plus purchases, as shown in Illustration 5-12 . Basic formula for cost of goods sold using the periodic system Another difference between the two approaches is that the perpetual system directly adjusts the Merchandise Inventory account for any transaction that affects inventory (such as freight costs, returns, and discounts). The periodic system does not do this
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Determine Cost of Goods Sold under a Periodic System -...

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