Records are kept for amount of purchases throughout

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Unformatted text preview: rds are not up to date. Records are kept for amount of purchases throughout the year, which is added to beginning inventory to determine cost of goods available for sale. Ending inventory is deducted from cost of goods available for sale (at year end) to calculate cost of goods sold. Cannot reliably determine ending inventory balances until it is counted at year-end! To calculate Cost of Goods Sold (under Periodic Method): Beginning Inventory + Purchases Purchase Returns and Allowances Purchase Discounts + Freight In Cost of Goods Available for Sale Ending Inventory = Cost of Goods Sold Comparison of Journal entries under Perpetual and Periodic Methods: 1. Sold merchandise that cost $4 for a selling price of $12. Perpetual Debit Cost of Goods Sold Periodic Credit Debit $4 No entry Inventory Cash $4 Cash $12 Sales 2. $12 Sales $12 $12 Purchased Inventory from a supplier for $100 on credit, terms 2/10, n/30. Perpetual Debit Inventory Periodic Debit Credit Purchases $100 Accts Payable Credit $100 Accts Payable $100 3. Credit $100 Paid the supplier within the discount period. Perpetual Debit Accts Payable Periodic Credit Debit Accts Payable $100 Cash Inventory $98 $2 40 Credit $100 Cash Purch. Discounts $98 $2 Periodic Perpetual Credit Debit Accts Payable Cash Credit Debit Accts Payable $100 S100 $100 Cash $100...
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