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Fundamentals of Financial Management, Concise Edition10th EditionEugene F. Brigham, Joel Houston 777 solutions Periodic inventory system updates inventory balance once in a period. We discussed this concept in the perpetual-periodic inventory comparison. Here, we will learn the typical journal entries under a periodic inventory system. Let us assume that all sales and purchases are on credit. Also assume that where discounts are provided or availed on sales/purchases, they are recorded using the gross method (to learn more about gross method, see discount on sales and discount on inventory purchases). Following are the typical journal entries under a periodic inventory system: Inventory
Purchase:
Purchase Discount:
Note: The above two journal entries are usually combined in a single entry which is shown below:
Purchase Return:
Inventory Sale:
Sales Discounts:
Again, the above two entries are combined in a period inventory system as shown below:
Sales Return:
At the end of each accounting period, the value of ending inventory is determined by physical count. Cost of goods sold is determined either as a balancing figure in the closing entry shown at the end or by using the following formula: COGS = Beginning Inventory + Purchases − Ending Inventory The closing entry required in a periodic inventory system debits:
and credits:
The entry is shown below:
A simplified form of the above journal entry uses a single debit or credit to inventory account by calculating the difference of ending inventory and beginning inventory. If the difference is positive, the inventory account will be debited for the difference and if it the difference is negative, the journal entry will credit the inventory account by the difference. by Irfanullah Jan, ACCA and last modified on Mar 18, 2019 What are the closing entries in periodic inventory system?Closing Entries (Periodic)
In order for the Merchandise Inventory account to reflect the ending balance as determined by the physical inventory count, the beginning inventory balance must be removed by crediting Merchandise Inventory, and the ending inventory balance entered by debiting it.
What is the journal entry for periodic inventory system?In a periodic system, you enter transactions into the accounting journal. This journal shows your company's debits and credits in a simple column form, organised by date. Record the purchase of inventory in a journal entry by debiting the purchase account and crediting accounts payable.
How do you calculate periodic inventory sales?The Periodic/Purchases method calculates your cost of sales by simply taking the total of all your inventory/item purchases and reflecting it on your Profit and Loss report (as Purchases).
Which of the following businesses is most likely to use a periodic inventory system?Seasonal businesses, start-ups, businesses that sell high ticket items, and companies with a low inventory turnover are most likely to use periodic inventory systems. This is because these businesses have less need for accurate and up-to-date inventory information.
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