7/14/2023 0 Comments Debit credit t account![]() Notice that there is no particular need to divide the inventory account into a variety of subsets, such as raw materials, work-in-process, or finished goods. ![]() Under a periodic inventory system, inventory purchases made by a company are initially stored in a purchases (asset) account with the following journal entry: = $190,000 Cost of goods sold Periodic Inventory Accounting The calculation of its cost of goods sold is: The calculation of the cost of goods sold under the periodic inventory system is:īeginning inventory + Purchases = Cost of goods available for saleĬost of goods available for sale – Ending inventory = Cost of goods soldįor example, Milagro Corporation has beginning inventory of $100,000, has paid $170,000 for purchases, and its physical inventory count reveals an ending inventory cost of $80,000. When a physical inventory count is done, the balance in the purchases account is then shifted into the inventory account, which in turn is adjusted to match the cost of the ending inventory. Under the periodic inventory system, all purchases made between physical inventory counts are recorded in a purchases account. In the meantime, the inventory account in the accounting system continues to show the cost of the inventory that was recorded as of the last physical inventory count. Since physical inventory counts are time-consuming, few companies do them more than once a quarter or year. A periodic inventory system only updates the ending inventory balance in the general ledger when a physical inventory count is conducted.
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