Concept explainers
(Supplement A) Recording Inventory Transactions Using Periodic and Perpetual Inventory Systems
Sigfusson Supplies reported beginning inventory of 100 units, for a total cost of $2,000. The company had the following transactions during the month:
Jan. 6 | Sold 20 units on account at a selling price of $30 per unit. |
9 | Bought 10 units on account at a cost of $20 per unit. |
11 | Sold 10 units on account at a selling price of $35 per unit. |
19 | Sold 20 units on account at a selling price of $40 per unit. |
27 | Bought 10 units on account at a cost of $20 per unit. |
31 | Counted inventory and determined that 60 units were on hand. |
Required:
- 1. Prepare the
journal entries that would be recorded using a periodic inventory system. - 2. Prepare the journal entries that would be recorded using a perpetual inventory system, including any “book-to-physical” adjustment that might be needed.
- 3. What is the dollar amount of shrinkage that you were able to determine in (a) requirement 1, and (b) requirement 2? Enter CD (cannot determine) if you were unable to determine the dollar amount of shrinkage.
1.
To Prepare: Journal entries to record transactions using a periodic inventory system.
Answer to Problem 6PB
Recording transactions by using Periodic inventory system:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 6 | Accounts receivable | 600 | |
Sales Revenue | 600 | ||
(To record sale of goods on account) | |||
January 9 | Purchases | 200 | |
Accounts payable | 200 | ||
(To record purchase of additional units on account) | |||
January 11 | Accounts receivable | 350 | |
Sales Revenue | 350 | ||
(To record sale of goods on account) | |||
January 19 | Accounts receivable | 800 | |
Sales Revenue | 800 | ||
(To record sale of goods on account) | |||
January 27 | Purchases | 200 | |
Accounts payable | 200 | ||
(To record purchase of additional units on account) | |||
January 31 | Cost of goods sold(1) | 2,400 | |
Purchases | 400 | ||
Inventory (2) | 2,000 | ||
(To record closing of beginning inventory with cost of goods sold) | |||
Inventory (3) | 1,200 | ||
Cost of goods sold | 1,200 | ||
(To record closing of ending inventory with cost of goods sold) |
Table (1)
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 6:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $600.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $600.
Calculation of the goods sold on account:
On January 9:
- Purchase is an expense account which is a component of stockholders’ equity and it increases. Hence, debit the purchases by $200
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $200.
Calculation of purchase on account:
On January 11:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $350.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $350.
Calculation of the goods sold on account:
On January 19:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $800.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $800.
Calculation of the goods sold on account:
On January 27:
- Purchase is an expense account which is a component of stockholders’ equity and it increases. Hence, debit the purchases by $200
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $200.
Calculation of purchase on account:
On January 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 $2,400.
- Purchase is an expense account which is a component of stockholders’ equity and it increases. Hence, debit the purchases by $400
- Inventory is an asset and it decreases. Hence, credit inventory by $2,000.
- Inventory is an asset and it increases. Hence, debit inventory by $1,200.
- 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 $1,200.
Calculation of cost of goods sold:
Particulars | Amount ($) | Amount ($) |
Beginning inventory (2) | 2,000 | |
Add: Purchases | 400 | |
Cost of goods available for sale | 2,400 | |
Less: Ending inventory (3) | 1,200 | |
Cost of goods sold | 1,200 |
Table (2)
(1)
Calculation of beginning Inventory:
Calculation of ending Inventory:
2.
To Prepare: Journal entries to record transactions using a perpetual inventory system by including any “book-to-physical” adjustment which is needed.
Answer to Problem 6PB
Recording transactions by using Perpetual inventory system:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 6 | Accounts receivable | 600 | |
Sales Revenue | 600 | ||
(To record sale of goods on account) | |||
January 6 | Cost of goods sold | 400 | |
Inventory | 400 | ||
(To record cost of goods sold) | |||
January 9 | Inventory | 200 | |
Accounts payable | 200 | ||
(To record purchase of additional units on account) | |||
January 11 | Accounts receivable | 350 | |
Sales Revenue | 350 | ||
(To record sale of goods on account) | |||
January 11 | Cost of goods sold | 200 | |
Inventory | 200 | ||
(To record cost of goods sold) | |||
January 19 | Accounts receivable | 800 | |
Sales Revenue | 800 | ||
(To record sale of goods on account) | |||
January 19 | Cost of goods sold | 400 | |
Inventory | 400 | ||
(To record cost of goods sold) | |||
No year-end adjusting entry needed | |||
January 27 | Inventory | 200 | |
Accounts payable | 200 | ||
(To record purchase of additional units on account) | |||
January 31 | Cost of goods sold | 200 | |
Inventory | 200 | ||
(To record “book-to-physical” adjustment) |
Table (3)
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 6:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $600.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $600.
- 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 $400.
- Inventory is an asset and it decreases. Hence, credit inventory by $400.
Calculation of the goods sold on account:
Calculation of cost of goods sold:
On January 18:
- Inventory is an asset and it increases. Hence, debit the inventory by $200
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $200.
Calculation of purchase on account:
On January 11:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $350.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $350.
- 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 $200.
- Inventory is an asset and it decreases. Hence, credit inventory by $200.
Calculation of the goods sold on account:
Calculation of cost of goods sold:
On January 19:
- Accounts receivable is an asset and it increases. Hence, debit the accounts receivable by $800.
- Sales revenue is a revenue account which is a component of stock holders’ equity and it increases. Hence, credit the sales revenue by $800.
- 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 $400.
- Inventory is an asset and it decreases. Hence, credit inventory by $400.
Calculation of the goods sold on account:
Calculation of cost of goods sold:
On January 27:
- Inventory is an asset and it increases. Hence, debit the inventory by $2000
- Accounts payable is a liability and it increases. Hence, credit the accounts payable by $200.
Calculation of purchase on account:
On January 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 $200.
- Inventory is an asset and it decreases. Hence, credit inventory by $200.
Calculation of shrinkage units:
Calculation of “book-to-physical”:
3.
Explanation of Solution
By usingperiodic inventory system in requirement 1 the dollar amount of shrinkage cannot be determined.
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Chapter 6 Solutions
Fundamentals Of Financial Accounting
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