Chapter 5: Periodic Inventory System

Which are temporary accounts under a periodic system?

* Purchases and Transportation-In

Sales Return

A customer returned part of the merchandise from the transaction where the returned items sells from800 and cost 600. The periodic system records only the revenue effect, not the cost effect, for sales transaction.

Do reported amounts of ending inventory and net income differ if the adjusting entry method of recording the change in inventory is used instead of the closing entry method?

Both methods report the same ending inventory and income.

Cost of Goods sold Formula

COGS = EI - MAFS COGS = Cost of Goods Sold EI = Ending inventory MAFS = Merchandise available for sale

What account is used in a perpetual inventory system but not in a periodic system?

Cost of goods sold

Transportation-in

In the periodic system, this cost is charged to a temporary Transportation-In account.

Point

Point: Purchase discount and purchase returns and allowances r both classified as contra-purchases accounts and have normal credit balances.

Purchase Returns and Allowances

Purchase Returns and Allowances account accumulates the cost of all returns and allowances during a period..

Periodic Inventory System

Requires updating the inventory account only at the end of a period to reflect the quantity and cost of both the goods available and the goods sold.

Purchase discount

The periodic system uses a temporary Purchase Discounts account that accumulates discounts taken on purchase transaction during the period.

Purchases

The periodic system uses a temporary Purchases account that accumulates the cost of all purchase transactions during each period.

How is cost of goods sold computed under a periodic inventory system?

Under a periodic inventory system, the cost of goods sold is determined at the end of an accounting period by adding the net cost of goods purchased to the beginning inventory and subtracting the ending inventory.

Recording Merchandise Transactions

Under a periodic system, purchases, purchase returns and allowances, purchase discount, and transportation-in transactions r recorded in separate temporary accounts. At period-end, each of these temporary accounts is closed and the merchandise inventory account is updated.

Sales

Under the periodic system, the cost of goods sold is not recorded at the time of each sale.