current-assets-part-ii

Perpetual inventory systems all of the preceding

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Unformatted text preview: on the periodic inventory system. In other words, the ending inventory was counted and costs were assigned only at the end of the period. A more robust system is the perpetual system. With a perpetual system, a running count of goods on hand is maintained at all times. Modern information systems facilitate detailed perpetual cost tracking for those goods. 7.1 Perpetual FIFO The following table reveals the FIFO application of the perpetual inventory system for Gonzales: Date Purchases Sales Cost of Goods Sold 1-Jan 5-Mar 17-Apr 7-Sep 11-Nov Balance 4,000 X $12 = $ 48,000 4,000 X $12 = $ 48,000 6,000 X $16 = $ 96,000 $144,000 6,000 X $16 = $ 96,000 *** 7,000 X $22 = $154,000 4,000 X $12 = $ 48,000 3,000 X $16 = $ 48,000 $ 96,000 3,000 X $16 = $ 48,000 3,000 X $16 = $ 48,000 8,000 X $17 = $136,000 $184,000 8,000 X $17 = $136,000 6,000 X $25 = $150,000 3,000 X $16 = $ 48,000 3,000 X $17 = $ 51,000 $ 99,000 31-Dec 5,000 X $17 = $ 85,000 5,000 X $17 = $ 85,000 Download free ebooks at bookboon.com 33 Perpetual Inventory Systems Current Assets: Part II Two points come to mind when examining this table. First, there is considerable detail in tracking inventory using a perpetual approach; thank goodness for computers. Second, careful study is needed to discern exactly what is occurring on each date. For example, look at April 17 and note that 3,000 units remain after selling 7,000 units. This is determined by looking at the preceding balance data on March 5 (consisting of 10,000 total units (4,000 + 6,000)), and removing 7,000 units as follows: all of the 4,000 unit layer, and 3,000 of the 6,000 unit layer. Remember, this is the FIFO application, so the layers are peeled away based on the chronological order of their creation. In essence, each purchase and sale transaction impacts the residual composition of the layers associated with the item of inventory. Realize that this type of data must be captured and maintained for each item of inventory if the perpetual system is to be utilized; a task that was virtually impossible before cost effective computer solutions became commonplace. Today, the method is quite common, as it provides better “real-time” data needed to run a successful business. 7.2 Journal Entries The table above provides information needed to record purchase and sale information. Specifically, Inventory is debited as purchases occur and credited as sales occur. Following are the entries: 3-5-XX Inventory 96,000 Accounts Payable 96,000 Purchased inventory on account (6,000 X $16) 4-17-XX Accounts Receivable 154,000 Sales 154,000 Sold merchandise on account (7,000 X $22) 4-17-XX Cost of Goods Sold 96,000 Inventory *** 96,000 To record the cost of merchandise sold ((4,000 X $12) + (3,000 X $16)) 9-7-XX Inventory 136,000 Accounts Payable 136,000 Purchased inventory on account (8,000 X $17) 11-11-XX Accounts Receivable 150,000 Sales 150,000 Sold merchandise on account (6,000 X $25) 11-11-XX Cost of Goods Sold 99,000 Inventory 99,000 To record the cost of merchandise sold ((3,000 X $16) + (3,000 X $17)) Download free ebooks at bookboon.com 34 Perpetual Inventory Systems Current Assets: Part II Let’s see how these entries impact certain ledger accounts and the re...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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