Identify whether each description best applies to a periodic or a perpetual inventory system Essay

EXERCISE 5-8

Identify whether each description best applies to a periodic or a perpetual inventory system.

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More Essay Examples on Inventory control system Rubric

a - Identify whether each description best applies to a periodic or a perpetual inventory system Essay introduction. Provides more timely information to managers.

Perpetual inventory system keeps a running balance of both inventories on hand and the cost of goods sold and keeps a closer look both in terms of dollars and in units. Management is therefore always aware of inventory levels and is able to make timely purchases that will ensure the maintenance of desired inventory levels. Another feature of perpetual inventory system is to provide the firm with information concerning its inventory levels that’s why all the managers prefer perpetual inventory system rather than periodic inventory system.

b. Requires an adjusting entry to record inventory shrinkage.

PERIODIC
PERPETUAL
None
Cost of Goods Sold                xxxx

           Merchandise Inventory     xxxx

c. Markedly increased in frequency and popularity in business within the past decade.

From the perspective frequency and popularity in business circle perpetual inventory system is preferable because this methodology keep updating the management and reviews all the consequences they face in this method like spoilage and defective units. This method reconciles the inventory on a daily basis regarding the issuance and receipt of units both in terms of dollars and in units. So that is why management prefers this technique from past decade.

d. Records cost of goods sold each time a sales transaction occurs.

Whenever sales are made the cost of goods sold are recorded under the perpetual inventory system

Accounts Receivable     xxx

                                                           Sales                                  xxx

Cost of Goods Sold          xxx

                                                           Merchandise Inventory      xxx

EXERCISE 5-9

A
B
C
D
E
Sales
$60,000
$42,500
$36,000
$78,000
$23,600
Cost of goods sold

Merchandise inventory (beginning)
$6,000
$17,050
$7,500
$7,000
$2,560
Total cost of merchandise purchases
$36,000
$1,550
$33,750
$32,000
$5,600
Merchandise inventory (ending)
($7,950)
($2,700)
($9,000)
($6,600)
($2,560)
Cost of goods sold
$34,050
$15,900
$32,250
$32,400
$5,600
Gross profit
$25,950
$26,600
$3,750
$45,600
$18,000
Expenses
$9,000
$10,650
$12,150
$2,600
$6,000
Net income (loss)
$16,950
$15,950
($8,400)
$43,000
$12,000

EXERCISE 5-13

JOURNAL ENTRIES

DATE
PERIODIC SYSTEM
PERPETUAL SYSTEM
Nov 1

Purchases                  1,400

     Accounts Payable         1,400

Merchandise Inventory   1400

      Accounts Payable             1,400
Nov 5

Accounts Payable      1,400

     Cash                               1,400

Accounts Payable          1,400

     Cash                                  1,400
Nov 7

Accounts Payable       100

     Purchase Returns             100

      &Allowances.

Accounts Payable           100

     Merchandise Inventory     100
Nov 10

Transportation-In         80

     Cash                                 80

Merchandise Inventory    80

      Cash                                80

Nov 13
Accounts Receivable  1,500

     Sales                               1,500

Accounts Receivable     1,500

     Sales                                  1,500

Cost of Goods Sold          750

     Merchandise Inventory      750

Nov 16

Sales Returns and      200

Allowances

     Accounts Receivable         200

Sales Returns and            200

Allowances

     Accounts Receivable           200

Merchandise Inventory     100

     Cost of Goods Sold              100

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