Companies may use either the perpetual system or the periodic system to account for inventory. Under the periodic system, merchandise purchases are recorded in the purchases account, and the inventory account balance is updated only at the end of each accounting period. Perpetual inventory systems have traditionally been associated with companies that sell small numbers of high‐priced items, but the development of modern scanning and computer technology has enabled almost any type of merchandiser to consider using this system. Show
Under the perpetual system, purchases, purchase returns and allowances, purchase discounts, sales, and sales returns are immediately recognized in the inventory account, so the inventory account balance should always remain accurate, assuming there is no theft, spoilage, or other losses. Consider several entries under both systems. The reference columns are removed from the illustration to simplify what you're seeing. (Note: Ap stands for accounts payable, and AR stands for accounts receivable.)
 As the two sets of circled entries indicate, two things happen when there is a sale or a sales return. First, the sales transaction's effect on revenue must be recognized by making an entry to increase accounts receivable and the sales account. Second, the flow of merchandise between inventory (an asset) and cost of goods sold (an expense) is recorded in accordance with the matching principle. A sales return has the opposite effect on the same accounts. Under the periodic system, the inventory and cost of goods sold accounts are updated only periodically, but under the perpetual system, entries that recognize a transaction's effect on these accounts occur when the revenue from the sale is recognized. For convenience, a sale or sales return can be recorded under the perpetual system with a compound entry that lists all four accounts.
The general journal provides a simple, consistent format to present new information. However, most companies would record the sale in a sales journal. A company can account for changes in inventory using either periodic inventory system or perpetual inventory system. In the perpetual system, the company maintains a continuous record of inventory changes. All the purchases and sales of inventory are directly recorded in the inventory account. For every sale, the COGS is debited and inventory is credited. In the periodic system, the company updates inventory records only periodically. All inventory purchases are debited to purchase account. The cost of goods sold and inventory values are determined at the end of the period. At the end of the period, we add purchases to the beginning inventory to arrive at the cost of goods available for sale. Then we subtract ending inventory to calculate COGS. Under FIFO and specific identification methods, the values for COGS and ending inventory will be same in both perpetual and periodic inventory system. However, they will differ in LIFO and average cost methods. ExampleWe will use the same example of SuperMart.
Our earlier calculations of COGS and Ending inventory were based on periodic inventory system. We will now recalculate the same under perpetual inventory system using FIFO and LIFO methods. FIFO Perpetual SystemThe COGS and Ending inventory are the same in FIFO perpetual system as in FIFO periodic system. On June 20, 4000 units were sold. The COGS will be calculated as follows:
On June 30, there are 6,000 units in inventory. The ending inventory will be calculated as follows:
LIFO Perpetual SystemOn June 20, 4000 units were sold. The COGS will be calculated as follows:
On June 30, there are 6,000 units in inventory. The ending inventory will be calculated as follows:
Note that the COGS and Ending inventory under Perpetual LIFO are different from periodic LIFO. Is cost of goods sold periodic or perpetual?Businesses can choose to use either a perpetual period periodic inventory system to calculate their cost of goods sold (COGS). A periodic inventory system calculates the COGS following a physical inventory count at period-end, whereas a perpetual inventory system calculates the COGS after each sale.
Is FIFO the same for periodic and perpetual?First-in-first-out method is used in both periodic and perpetual inventory system to calculate the cost of ending inventory and cost of goods sold. Under both inventory system, FIFO method provides same output over the same question.
Which inventory method produces the same cost of goods sold in both a periodic and perpetual inventory system?The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: FIFO. After applying the lower-of-cost-or-market method, the accountant prepares a year-end adjustment.
How to calculate cost of goods sold under perpetual inventory system?The cost of goods sold is calculated by adding the beginning inventory and purchases to obtain the cost of goods available for sale and then deducting the ending inventory.
|
Cost of goods sold is the same under periodic system and perpetual system using
zusammenhängende Posts
Urheberrechte © © 2024 IlerngutCOM Inc.
