Accounting Study Guide

   Perpetual inventory system updates inventory accounts after each purchase or sale.

      Inventory subsidiary ledger is updated after each transaction.
      Inventory quantities are updated continuously.

   Periodic inventory system records inventory purchase or sale in "Purchases" account.

      "Purchases" account is updated continuously, however, "Inventory" account is updated on a periodic basis, at the end of each accounting period (e.g., monthly, quarterly)

      Inventory subsidiary ledger is not updated after each purchase or sale of inventory.
      Inventory quantities are not updated continuously.
      Inventory quantities are updated on a periodic basis.

   On May 1, 2010: Purchased 1,000 units of merchandise at $30 per unit.

Under Perpetual inventory system

5/1/2010			Debit	Credit
	Merchandise Inventory		30,000
		Accounts payable		30,000

Under Periodic inventory system

5/1/2010			Debit	Credit
	Purchases		30,000
		Accounts payable		30,000

   Under periodic inventory system, all purchases during the accounting period are recorded in the "Purchases" account.

   On May 6, 2010: Sold 200 units of merchandise at $50 per unit on credit.

Under Perpetual inventory system

5/1/2010			Debit	Credit
	Accounts Receivable		10,000
		Sales		10,000

 

5/1/2010			Debit	Credit
	Cost of goods sold		6,000
		Merchandise inventory		6,000

   Under perpetual inventory system, changes in merchandise inventory account are recorded after each transaction.


Under Periodic inventory system

5/1/2010			Debit	Credit
	Accounts Receivable		10,000
		Sales		10,000

   Under periodic inventory system, the following journal entry is recorded at the end of   accounting period.

5/31/2010			Debit	Credit
	Merchandise Inventory		24,000
		Purchases		24,000

   Quantity of merchandise inventory 
   = 1,000 units purchased - 200 units sold = 800 units left

   Cost of merchandise inventory
   = 800 units x $30 per unit cost = $24,000

5/31/2010			Debit	Credit
	Cost of goods sold		6,000
		Purchases		6,000

Cost of goods sold
   = Total purchases - Ending balance of merchandise inventory
   = 1,000 units x $30 per unit cost - 800 units x$30 per unit cost
   = $30,000 - $24,000 = $6,000

   On June 5, 2010: Purchased 600 units of merchandise at $35 per unit.

Under Perpetual inventory system

6/5/2010			Debit	Credit
	Merchandise Inventory		21,000
		Accounts payable		21,000

Under Periodic inventory system

6/5/2010			Debit	Credit
	Purchases		21,000
		Accounts payable		21,000

   Under periodic inventory system, all purchases during the accounting period are recorded in the "Purchases" account.


   On June 16, 2010: Sold 400 units of merchandise at $55 per unit on credit.

Under Perpetual inventory system

6/16/2010			Debit	Credit
	Accounts Receivable		22,000
		Sales		22,000

 

6/16/2010			Debit	Credit
	Cost of goods sold		14,000
		Merchandise inventory		14,000

   Under perpetual inventory system, changes in merchandise inventory account are recorded after each transaction.

Under Periodic inventory system

6/16/2010			Debit	Credit
	Accounts Receivable		22,000
		Sales		22,000

   Under periodic inventory system, the following journal entry is recorded at the end of   accounting period.

6/30/2010			Debit	Credit
	Merchandise Inventory		7,000
		Purchases		7,000

   Quantity of merchandise inventory 
   = 600 units purchased - 400 units sold = 200 units left

   Cost of merchandise inventory
   = 200 units x $35 per unit cost = $7,000

6/30/2010			Debit	Credit
	Cost of goods sold		14,000
		Purchases		14,000

Cost of goods sold
   = Total purchases - Ending balance of merchandise inventory
   = 600 units x $35 per unit cost - 200 units x$35 per unit cost
   = $21,000 - $7,000 = $14,000