Periodic Inventory Transactions
Periodic Inventory System
• Reminder:
– Periodic Inventory System is when a business
counts their inventory once a fiscal period
– Are more concerned with knowing the cost of
Purchases throughout a period
– DOES NOT keep track of inventory throughout the
period
Periodic Inventory System
• The newest account is called “Purchases”
– Anytime the business purchases inventory – purchases
is affected
– Treat Purchases as an expense
• A normal cost of running the business, even though
inventory is tangible
– Purchases is a Debit account (like expenses)
• To increase we will DR
• Very rarely decreases – we will discuss
– Part of the Cost of Goods section on the income
statement
The Periodic Inventory Method
Cash Purchase of Merchandise
• Jun. 8 – Purchases sports equipment from Schwinn,
$500, Cheque 86
Date
Jun
Particulars
8
Purchases
P.R.
Debit
Credit
500
1
1
Cash
2
3
500
2
Purchase Sports Equipment,
Cheque 86
3
The Periodic Inventory Method
Credit Purchase of Merchandise
• Jun. 9 – Purchases sports equipment from Spalding,
invoice 2974, $200 on account
Date
Jun
Particulars
9 Purchases
P.R.
Debit
Credit
200
1
1
A/P Spalding
2
3
200
2
Purchased Equipment, invoice
2974
3
Purchase Returns & Allowances
• As a consumer, you are well aware that we
do not always keep everything we buy
– Often it is necessary to return the goods for a
refund
• This occurs more often in business
– Businesses purchase in much larger
quantities
– Not uncommon to find a few
malfunctioning/errors in an order of an
entire pallet, box, etc.
Purchase Returns & Allowances
• We have recorded the purchase right when it
happens
• If the business returns goods – a contra
expense account is created (Called Purchase
Returns & Allowances)
• Expenses are normally DR accounts
– Thus – contra expenses are CR accounts
• Is an I/S account that occurs in the COGS
section
The Periodic Inventory Method
Goods Returned for Cash Refund (Purchase Return &
Allowances)
• Jun. 10 – Received refund Cheque for $100 from
Schwinn for goods returned.
Date
Jun
Particulars
10
Cash
P.R.
Debit
Credit
100
1
2
3
1
Purchases Ret. & Allow.
Cash Refund from Schwinn
100
2
3
The Periodic Inventory Method
Goods returned for Credit (Purchase Returns &
Allowances)
• Jun. 11 – Received Credit Invoice 981 for $200 from
Spalding Ltd. for returned tennis equipment.
Date
Jun
Particulars
11
A/P Spalding Ltd
P.R.
Debit
Credit
500
1
1
Purchases Ret. & Allow
2
3
500
2
Returned Defective Equipment,
invoice 981
3
Freight - In
• Often, a business has to pay for the
shipping of the inventory to their location
– Establishing an account called Freight In
• Does not always occur – is negotiated during the
terms of purchase who is paying for the freight
• Freight – In is adds to the purchase cost
– Thus, is a Debit account
– Also, an I/S account that occurs in the COGS
section
The Periodic Inventory Method
Freight In
• Freight In is part of the Cost Of Goods Sold Account
(Freight Out is not)
Date
Jun
Particulars
16 Freight In
P.R.
Debit
Credit
200
1
1
Cash
200
2
2
3
3
The Merchandising Company
New Account
Type of Account
1. Sales
Revenue
2. Sales Discounts
Contra-Revenue
3. Sales Returns &
Allowances
Contra-Revenue
4. Purchases
COGS (expense)
5. Purchase Discounts
COGS (Contra-Expense)
6. Purchase Returns &
Allowances
COGS (Contra-Expense)
7. Freight In
COGS (expense)
The Merchandising Company
• Updated Chart of Accounts
– Assets
– Liabilities
– Capital (including Drawings)
– Revenues
– COGS Expenses
– Operating Expenses
100-199
200-299
300-399
400-499
500-599
600-699
Homework
• Page 311-312
– 11a, 13