|
AccountingTermsDictionary |
| U.S. GAAP Codification | Accounting Topics |
|
Accounting Terms Dictionary |
| Principles of Accounting, U.S. GAAP Financial Reporting Guide |
| Accounting by Topic, Accounting Terms Dictionary |
| Accounting Terms Dictionary |
| Recording Inventory Transactions |
| Recording Inventory Transactions 1. Two methods of recording inventory transactions (1) Perpetual inventory system (2) Periodic inventory system 2. Perpetual inventory system --> records purchases to inventory account --> each time transaction occurs --> inventory account is updated continuously during the period 3. Periodic inventory system --> records purchases to purchases account --> inventory account is updated only at the end of the period --> based on the results of physical inventory taking [Example 1] January 1, 2011 Entity A had 400 units of merchandise in inventory at $10 per unit cost 5. January 10, 2011 Entity A purchased 500 units of merchandise at $10 per unit price on credit Journal entry for perpetual inventory system |
Journal entry for periodic inventory system |
6. January 20, 2011 Entity A purchased 600 units of merchandise at $10 per unit price on credit Journal entry for perpetual inventory system |
Journal entry for periodic inventory system |
7. January 25, 2011 Entity A sold 700 units of merchandise at $15 per unit price on credit Journal entry for perpetual inventory system To record sale s revenue |
To record cost of goods sold |
Journal entry for periodic inventory system To record sale s revenue |
No journal entry is prepared to record cost of goods sold during the period --> cost of goods sold is recorded only at the end of the period 8. January 31, 2011 Entity A took physical inventory and counted 800 units of merchandise inventory Journal entry for perpetual inventory system --> no journal entry is prepared --> inventory and cost of goods sold accounts are updated --> continuously during the period Journal entry for periodic inventory system Beginning inventory = 400 units x $10 = $4,000 Purchases = 500 unit x $10 + 600 units x $10 = $11,000 Cost of goods sold = 700 units x $10 =$7,000 Ending inventory = 800 units x $10 = $8,000 Beginning inventory and purchases are redistributed --> to cost of goods sold and ending inventory |
9. Gross profit is same for both methods of inventory recording Sales revenue - Cost of goods sold = $10,500 - $7,000 = $3,500 |
| Index of Accounting Terms Dictionary |
| Copyright © AccountingInfo.comTM Legal Disclaimer |