Using a periodic inventory system12/16/2023 ![]() ![]() The bicycle is recorded at $250 and then reduced by $5 at the time the discount is taken. Furthermore, the actual purchase is initially on credit with payment made during the ten-day discount period. The assumption is made here that the transportation and assembly charges are paid in cash. A separate subsidiary ledger file (such as shown previously) is also established to record the quantity and cost of the specific items on hand. (the sporting goods company) makes for its purchase of a bicycle to sell (Model XY-7) if a perpetual inventory system is utilized. The total cost is available in the inventory T-account but detailed data about the composition (the quantity and frequently the cost) of merchandise physically held is maintained in a subsidiary ledger where an individual file can be available for each item.īelow are the journal entries that Rider Inc. That is the significance of a perpetual system it provides the ability to keep track of the various types of merchandise. ![]() However, the company also needs specific information as to the quantity, type, and location of all televisions, cameras, computers, and the like that make up this sum. On February 28, 2009, Best Buy reported inventory totaling $4.753 billion. In a perpetual inventory system, the maintenance of a separate subsidiary ledger showing data about the individual items on hand is essential. Consequently, even with a perpetual system, the inventory records must be reconciled occasionally with the items actually present to reestablish accuracy. In actual practice, recording mistakes as well as losses such as theft and breakage create some (hopefully small) discrepancies. Thus, theoretically, the balance found in that general ledger account at any point in time will be identical to the merchandise physically on hand. How is the recording of an inventory purchase carried out in a perpetual system?Īnswer: When a perpetual inventory system is in use, all additions and reductions are monitored in the inventory T-account. A perpetual system-which frequently relies on bar coding and computer scanning-maintains an ongoing record of all items present. Question: In an earlier chapter, differences between a perpetual inventory system and a periodic inventory system were discussed briefly. Provide journal entries for a variety of transactions involved in the purchase of inventory using both a perpetual and a periodic inventory system.Identify the attributes as well as both the advantages and disadvantages of a periodic inventory system.Identify the attributes as well as both the advantages and disadvantages of a perpetual inventory system.\)Īt the end of this section, students should be able to meet the following objectives: ![]()
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