14 inventory systems periodic vs perpetual 14

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……………………………………………………………………………………………………………………………………………………………………………………………………1.4 INVENTORY SYSTEMS: PERIODIC VS PERPETUAL1.4 INVENTORY SYSTEMS: PERIODIC VS PERPETUALThere are two principal systems of inventory accounting periodic and perpetual.There are two principal systems of inventory accounting periodic and perpetual.1.4.1 Periodic inventory system1.4.1 Periodic inventory systemUnder this system there is no continuous record of merchandise inventory account. TheUnder this system there is no continuous record of merchandise inventory account. Theinventory balance remains the same through out the accounting period, i.e. the beginninginventory balance remains the same through out the accounting period, i.e. the beginninginventory balance. This is because when goods are purchased, they are debited to theinventory balance. This is because when goods are purchased, they are debited to thepurchases account rather than merchandise inventory account.purchases account rather than merchandise inventory account.The revenue from sales is recorded each time a sale is made. No entry is made for the cost ofThe revenue from sales is recorded each time a sale is made. No entry is made for the cost ofgoods sold. So, physical inventory must be taken periodically to determine the cost ofgoods sold. So, physical inventory must be taken periodically to determine the cost ofinventory on hand and goods sold.inventory on hand and goods sold.The periodic inventory system is less costly to maintain than the perpetual inventory system,The periodic inventory system is less costly to maintain than the perpetual inventory system,but it gives management less information about the current status of merchandise.but it gives management less information about the current status of merchandise.This system is often used by retail enterprises that sell many kinds of low unit costThis system is often used by retail enterprises that sell many kinds of low unit costmerchandise such as groceries, drugstores, hardware etc.merchandise such as groceries, drugstores, hardware etc.The journal entries to be prepared are:The journal entries to be prepared are:1.1.At the time of purchase of merchandise:At the time of purchase of merchandise:PurchasesPurchasesXXXXat costat costAccounts payable or cashAccounts payable or cashXXXX2.2.At the time of sale of merchandise:At the time of sale of merchandise:Accounts receivable or cashAccounts receivable or cashXXXXat retail priceat retail priceSalesSalesXXXX3.3.To record purchase returns and allowance:To record purchase returns and allowance:Accounts payable or cashAccounts payable or cashXXXXPurchase returns and allowancePurchase returns and allowanceXXXX4.4.To record adjusting entry or closing entry for merchandise inventory:To record adjusting entry or closing entry for merchandise inventory:Income SummaryIncome SummaryXXXXMerchandise inventory (beginning)Merchandise inventory (beginning)XXXXTo close beginning inventoryTo close beginning inventoryMerchandise inventory (ending)Merchandise inventory (ending)XXXXIncome summaryIncome summaryXXXXTo record ending inventoryTo record ending inventory5

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Term
Fall
Professor
cherinet
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