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This system is often used by retail enterprises that

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This system is often used by retail enterprises that sell many kinds of low unit cost merchandise such asThis system is often used by retail enterprises that sell many kinds of low unit cost merchandise such asgroceries, drugstores, hardware etc.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 inventory1.3.2 Perpetual inventory system1.3.2 Perpetual inventory systemUnder this system the accounting record continuously disclose the amount of inventory. So, the inventoryUnder this system the accounting record continuously disclose the amount of inventory. So, the inventorybalance will not remain the same in the accounting period. All increases are debited to merchandisebalance will not remain the same in the accounting period. All increases are debited to merchandiseinventory account and all decreases are credited to the same account.inventory account and all decreases are credited to the same account.There are no purchases and purchase returns and allowances accounts in this system. At the time of sale,There are no purchases and purchase returns and allowances accounts in this system. At the time of sale,the cost of goods sold is recorded in addition to Journal entry for the sale. So, we can determine the cost ofthe cost of goods sold is recorded in addition to Journal entry for the sale. So, we can determine the cost ofinventory as well as goods sold from the accounting record. No need of physical counting to determineinventory as well as goods sold from the accounting record. No need of physical counting to determinetheir costs.their costs.Companies that sell items of high unit value, such as appliances or automobiles, tended to use theCompanies that sell items of high unit value, such as appliances or automobiles, tended to use theperpetual inventory system.perpetual inventory system.

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