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(Supplement 6A) Recording Purchases and Sales Using Perpetual and Periodic Inventory Systems
Kangaroo Jim Company reported beginning inventory of 100 units at a per unit cost of $25. It had the following purchase and sales transactions during the year:
Jan. 14 | Sold 25 units at unit sales price of $45 on account. |
Apr. 9 | Purchased 15 additional units at a per unit cost of $25 on account. |
Sept. 2 | Sold 50 units at a sales price of $50 on account. |
Dec. 31 | Counted inventory and determined 40 units were Still on hand. |
Required:
Record each transaction, assuming that Kangaroo Jim Company uses (a) a perpetual inventory system and (b) a periodic inventory system.
(a)
To Record: Each transaction by assuming Company KJ uses perpetual inventory system.
Answer to Problem 29E
Recording transactions by using Perpetual inventory system:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 14 | Accounts receivable | 1,125 | |
Sales Revenue | 1,125 | ||
(To record sale of goods on account) | |||
January 14 | Cost of goods sold | 625 | |
Inventory | 625 | ||
(To record cost of goods sold) | |||
April 9 | Inventory | 375 | |
Accounts payable | 375 | ||
(To record purchase of additional units on account) | |||
September 2 | Accounts receivable | 2,500 | |
Sales Revenue | 2,500 | ||
(To record sale of goods on account) | |||
September 2 | Cost of goods sold | 1,250 | |
Inventory | 1,250 | ||
(To record cost of goods sold) | |||
December 31 | No year-end adjusting entry needed |
Table (1)
Explanation of Solution
Perpetual Inventory System:
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
Working notes:
On January 14:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $1,125.
- Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $1,125.
- Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $625.
- Inventory is an asset and it decreases. Hence, credit inventory by $625.
Calculation of the goods sold on account:
Calculation of cost of goods sold:
On April 9:
- Inventory is an asset and it increases. Hence, debit the inventory by $375
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $375.
Calculation of purchase of additional units on account:
On September 2:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $2,500.
- Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $2,500.
- Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $1,250.
- Inventory is an asset and it decreases. Hence, credit inventory by $1,250.
Calculation of the goods sold on account:
Calculation of cost of goods sold:
(b)
To Record: Each transaction by assuming Company KJ uses periodic inventory system.
Answer to Problem 29E
Recording transactions by using Periodic inventory system:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 14 | Accounts receivable | 1,125 | |
Sales Revenue | 1,125 | ||
(To record sale of goods on account) | |||
April 9 | Purchases | 375 | |
Accounts payable | 375 | ||
(To record purchase of additional units on account) | |||
September 2 | Accounts receivable | 2,500 | |
Sales Revenue | 2,500 | ||
(To record sold goods on account) | |||
December 31 | Cost of goods sold(1) | 2,875 | |
Purchases | 375 | ||
Inventory(2) | 2,500 | ||
(To record closing of beginning inventory with cost of goods sold) | |||
Inventory(3) | 1,000 | ||
Cost of goods sold | 1,000 | ||
(To record closing of ending inventory with cost of goods sold) |
Table (2)
Explanation of Solution
Periodic Inventory System:
Periodic inventory system is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Working notes:
On January 14:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $1,125.
- Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $1,125.
Calculation of the goods sold on account:
On April 9:
- Purchase is an expense account which is a component of stockholders’ equity and it increases. Hence, debit the purchases by $375
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $375.
Calculation of purchase of additional units on account:
On September 2:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $2,500.
- Sales revenue is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $2,500.
Calculation of the goods sold on account:
On December 31:
- Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $2,875.
- Purchase is an expense account which is a component of stockholders’ equity it increases. Hence, credit the purchases by $375
- Inventory is an asset and it decreases. Hence, credit inventory by $2,500.
- Inventory is an asset and it increases. Hence, debit inventory by $1,000.
- Cost of goods sold is an expense account which is a component of stockholders’ equity and it increases. Hence, debit cost of goods sold by $1,000.
Calculation of inventory:
Calculation of cost of goods sold:
Particulars | Amount ($) | Amount ($) |
Beginning inventory (2) | 2,500 | |
Add: Purchases | 375 | |
Cost of goods available for sale | 2,875 | |
Less: Ending inventory (3) | 1,000 | |
Cost of goods sold | 1,875 |
Table (3)
(1)
Calculation of beginning Inventory:
Calculation of ending Inventory:
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Chapter 6 Solutions
FINANCIAL ACCOUNTING (CUSTOM)
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