Periodic Inventory
Required Reading
Chapter 11
Periodic Inventory
• One of the two major ways of accounting for
inventory
• In periodic inventory, the cost of inventory is
only determined once per year.
• At the end of the accounting year, a physical
inventory, or count, is taken
• We assume that our inventory levels will more
or less be the same over the year.
Periodic Inventory
+
=
=
Beginning Inventory
Merchandise Purchased
Total goods available for sale
Merchandise Sold
Ending Inventory
The inventory figure here will go on the balance
sheet as a current asset.
AND…
+
=
Cost of beginning inventory
Cost of merchandise purchased
Cost of ending inventory
Cost of merchandise sold
This figure will go to the income statement in a
new section called “Cost of goods sold”.
Accounts
• Merchandise Inventory – In the periodic
system, this account shows the amount of
inventory on hand at the beginning of the
accounting period. A current asset.
• Purchases – An expense account where
ongoing purchases of inventory for resale are
recorded.
Accounts (continued)
• Sales – The name for the revenue account in a
merchandising business
• Freight-in – Transportation costs on incoming
merchandise. This includes any customs
charges and duty.