University:
California State University, Northridge
Course:
ACCT 505 | Financial and Managerial Accounting in Industry
Academic year:

2024
Views:

25

Pages:

1
Author:

Kaylah Sullivan

Authoritative Standards Inventory System periodic Under the periodic system all purchases are recorded in a separate account (purchases). At the end of the accounting period, the purchases and related accounts (freight-in; purchases returns/allowances; purchase discounts (lost)) are closed to (added to) the inventory account. The ending inventory is determined through a physical count. The difference between beginning inventory plus purchases minus the ending inventory is considered cost of goods sold. Example: Inventory (12/31/97) $2,400 Purchases Freight-in Purchase 38,000 1,000 ( 700) (1,200) (4,500) $35,000 discounts Purchase returns Inventory (12/31/1998) per count Cost of goods sold Perpetual In the perpetual system, all purchases are recorded directly (added) to inventory. Each time a sale occurs, the cost of goods sold is also recorded to (subtracted from) the inventory account. At the end of the accounting period the cost of actual goods sold is readily available. A physical count is taken to determine the actual inventory at hand. The difference between the actual inventory at the end of the accounting period and the balance in the inventory account identifies the amount of goods that are (a) not at hand and (b) were not sold ---> This is referred to as shrinkage. It arises from theft, spoilage, etc. If the amount is reasonable (< than 5%), it is added to cost of goods sold. Unusual amounts of shrinkage must be disclosed separately and are classified as losses. Example: Inventory (12/31/97) $2,400 Purchases 38,000 Freight-in 1,000 Purchase discounts ( 700) Purchase returns (1,200) Cost of goods sold (per records) $34,000 Inventory (12/31/98) per records $ 5,500 Inventory (12/31/98) per count $ 4,500 Shrinkage $ 1,000 Cost of goods sold reported $35,000