Under the periodic inventory system the cogs is


Under the periodic inventory system, the COGS is presented with its calculation in a multiple-
step income statement. This is different from the perpetual inventory system’s multiple-step
income statement, which presents COGS as a one-line item with no calculation.

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In Summary
Prepare closing entries for a merchandising business under the periodic inventory
system

All revenue and contra-expense accounts are closed to the income summary account. The
balance of ending inventory is also added to the income summary account in this entry.

All expense and contra-revenue accounts are closed to the income summary account. The
balance of beginning inventory is also removed from the income summary account in this
entry.

The income summary is closed to the owner’s capital account.

If there are owner’s Withdrawals, they are closed directly to the owner’s capital account.

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CHAPTER 7

Merchandising Businesses

Perpetual vs. Periodic Inventory

The Perpetual Inventory System

Gross Profit Margin: A Profitability Ratio

Multiple-step Income Statement

Closing Entries

Controls Related to Inventory

In Summary

Exercise

Appendix 7A: The Periodic Inventory System

Reporting the Cost of Goods Sold

Multiple-step Income Statement

Closing Entries

In Summary

Exercise

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Exercise
Pete’s Wholesalers imports and distributes towels. They sell their products to various
retailers throughout the country and offer payments terms of 2/10, n/30. On October 1,
Pete’s made a large sale to Ernie’s Bathroom Retailers in the amount of $15,000 , which
cost Pete’s $9,000 . Pete’s uses a periodic inventory system. Assume Ernie’s paid the bill
on October 5. Record the journal entry.
JOURNAL
Date Account Title Debit Credit
Oct 5
Cash
14,700
Sales Discount
300
Collected accounts receivable less
discount allowed
Accounts
Receivable
15,000