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Perpetual vs. Periodic Inventory

 

Perpetual Inventory System

  • Record the quantity and cost of each item when they are bought, kept in inventory and sold.
  • Provide detail information so that merchandise availability can be known.
  • Record increase and decrease of merchandise to “Inventory account”.

 

Periodic Inventory System

  • Use temporary account to add the increase and decrease in merchandise, usually called “Purchase account”.

 

 

 

Perpetual

Periodic

Purchase

Debits Inventory Account

            Credit AP Control Account

Debits Purchases Account

            Credit AP Control Account

Sales

Debit the Cost of goods sold Account

            Credit Inventory Account

No Entry

Purchase Return

Debit AP Control Account

            Credit Inventory Account

Debit AP Control Account

            Credit Purchase Return Account

Sales Return

Debit Inventory Account

            Credit Cost of goods sold Account

No Entry

End of Period Entry

No Entry

(Compute

 Cost of Goods Sold =

            Inventory Beginning Balance

            + Net Purchase

            - Inventory Ending Balance)

Debit Inventory Movement

            Credit Cost of Goods Sold

            Credit Net Purchases

(this entry should be booked in GL Voucher entry)

 

Taken from Weygandt, Kieso and Trenholm. (1999). Accounting Principle (p. 197). Toronto: John Wiley & Sons Canada, Ltd.

 

 

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