Merchandise Accounting
Periodic
vs.
Perpetual
N O T E : T h e tw o m eth ods differ on ly w h en th e “costin g” of in ven tory occu rs.
Recall: All accounts associated with COGS (i.e. the cost of inventory) in the Periodic method are gone; all charges are made to the
Merchandise Inventory account.
Here you use:
Here you just use:
Merchandise Inventory (S ho w s p erio d ’s b egin nin g b alance)
Purchases
Purchase Returns and Allowances
Purchase Discounts
Freight-in
(Always shows current up-to-date balance)
Merchandise Inventory
Cost of Goods Sold
Inventory Shortage
The steps in the accounting cycle that differ between the two methods are bolded below:
1.
2.
3.
4.
5.
6.
7.
Journalise
Post
Balance on the Worksheet
Adjustments
Completing the Worksheet
Prepare the Balance Sheet and Income Statement
Journalise Adjusting and Closing Entries
Remember you can review
ALL of this online WITH
practice exercises at:
www.StudCo.ca
E ach “bolded” step w ill n ow be illu strated.
BAF 3M1 Note - Periodic v Perp
December 13, 2006
J. Boulton
Periodic
vs.
Perpetual
1. Journal Entries
The following types of journal entries differ
Purchase of Inventory
A pr
17 Purchases
GST Recoverable
Apr
1 0 0 0~
GST Recoverable
6 0~
Cash
17 Merchandise Inventory
1 0 0 0~
6 0~
Cash
1 0 6 0~
1 0 6 0~
Bought $1,000 of inventory (+GST)
B ought $1,000 of inventory (+GST )
Return of an Inventory Purchase
Apr
18 Cash
1 0 6 0~
Apr
GST Recoverable
6 0~
Purchase Returns
1 0 0 0~
18 Cash
1 0 6 0~
GST Recoverable
6 0~
Merchandise Inventory
Returned $1,000 of inventory (+GST)
1 0 0 0~
Returned $1,000 of inventory (+GST)
Discount on a Purchase
Apr
19 Accounts Payable
1 0 6 0~
Purchase Discounts
Cash
Payment on account for $1060. Terms taken: 2/10, n30.
BAF 3M1 Note - Periodic v Perp
December 13, 2006
Apr
2 1 20
1 0 3 8 80
19 Accounts Payable
1 0 6 0~
Merchandise Inventory
Cash
2 1 20
1 0 3 8 80
Payment on account for $1060. Terms taken: 2/10, n30.
J. Boulton
Periodic
vs.
Perpetual
Freight-in
Apr
19 Freight-in
1 0 0~
GST Recoverable
Apr
6~
Cash
19 Merchandise Inventory
1 0 0~
GST Recoverable
1 0 6~
6~
Cash
Payment for shipping inventory to us from supplier.
1 0 6~
Payment for shipping inventory to us from supplier.
Sale
A pr
20 Cash
A pr
1 1 4 0~
GST Payable
6 0~
PST Payable
8 0~
Sales
20 Cash
Cost of Goods Sold
1 1 4 0~
7 0 0~
M erchandise Inventory
1 0 0 0~
Sold $1,000 of inventory (+GST & PST ). Goods cost $700.
7 0 0~
GST Payable
6 0~
PST Payable
8 0~
Sales
1 0 0 0~
Sold $1,000 of inventory (+GST & PST ). Goods cost $700.
Sale Return
A pr
21 Sales Returns and A llowances
Apr
1 0 0 0~
21 Sales Returns and Allowances
1 0 0 0~
GST Payable
6 0~
Merchandise Inventory
PST Payable
8 0~
GST Payable
6 0~
PST Payable
8 0~
Cash
Customer returned $1,000 of inventory (+GST & PST ). Goods cost $700.
1 1 4 0~
7 0 0~
Cost of Goods Sold
Cash
7 0 0~
1 1 4 0~
Customer returned $1,000 of inventory (+GST & PST). Goods cost $700.
BAF 3M1 Note - Periodic v Perp
December 13, 2006
J. Boulton
Periodic
vs.
Perpetual
4. Adjustments
The only difference is the adjustment to correct inventory (if necessary)
A pr
22 Inventory Shortage
2 5 0~
M erchandise Inventory
2 5 0~
To adjust inventory account to reflect actual merchandise on hand.
5. Complete the Worksheet
The periodic method is different. Perpetual is the same as service.
A P artial W orksheet for a M erch an d isin g C om pany
A ccounts
T rial B alance
DR
M erchandise Inv entory
P urchases
A djustm ents
CR
13 5 0 0 ~
5 0 0 0 ~
2 5 0 ~
P urchase R eturns and A llowances
5 0 0 ~
BAF 3M1 Note - Periodic v Perp
December 13, 2006
5 0 0 ~
CR
Incom e S tatem ent
B alance S heet
DR
CR
DR
13 5 0 0 ~
15 2 5 0 ~
15 2 5 0 ~
CR
5 0 0 0 ~
P urchase D iscounts
F reight-in
DR
2 5 0 ~
5 0 0 ~
5 0 0 ~
J. Boulton
Periodic
vs.
Perpetual
6. Prepare Financial Statements
The Balance Sheet is the same. Only the COGS section on the Income Statement differs.
A Per iodic M er chandising Company
A Per petual Mer chandising Company
Income Statement
Month Ended January 31, 2003
Income Statement
Month Ended January 31, 2003
Oper ating Revenue
Operating Revenue
Sales
Less: Sales Discounts
Less: Sales Returns and Allowances
$ 10,000
(100)
(400)
(500)
Net Sales
$
9,500
Cost of Goods Sold
Merchandise Inventory, January 1
Add: Purchases
Less: Purchase Discounts
Less: Purchase Returns and Allowances
Net Purchases
Add: Freight-in
Goods Available for Sale
Less: Merchandise Inventory, January 31
Cost of Goods Sold
$ 13,500
$
4,250
500
18,250
(15,250)
$
3,000
6,500
$
1,000
100
300
200
1,500
500
Auto Expense
Delivery Expense
Depreciation Exp. - Auto
Insurance Expense
Salaries Expense
Supplies Expense
Total Operating Expenses
Loss on Disposal of Asset
Total Non-Operating Expenses
Net I ncome
Total Operating Expenses
6,500
$
1,000
100
300
200
1,500
500
3,600
$
$
2,900
1,000
1,000
$
1,900
3,600
$
Taxes and Extraordinary Items)
$
2,900
1,000
Total Non-Operating Expenses
BAF 3M1 Note - Periodic v Perp
December 13, 2006
$
Taxes and Extraordinary Items)
Oper ating I ncome (Income before Interest,
Net I ncome
(500)
9,500
(3,000)
Operating I ncome (Income before Interest,
Oper ating Expenses
Loss on Disposal of Asset
$ 10,000
(100)
(400)
Operating Expenses
5,000
(250)
(500)
Gross Profit
Auto Expense
Delivery Expense
Depreciation Exp. - Auto
Insurance Expense
Salaries Expense
Supplies Expense
Condenses
to just one
line.
Sales
Less: Sales Discounts
Less: Sales Returns and Allowances
Net Sales
Less: Cost of Goods Sold
Gross Profit
1,000
$
1,900
J. Boulton
Periodic
vs.
Perpetual
7. Journalise Closing Entries
S ince M erch andise Inven tory is perpetually updated, it doesn’t need to be adjusted in the closing entries for the P erpetual M ethod.
G eneral J ournal
D ate
P artic ulars
2003
Ja n
G eneral J ournal
P A G E : ______
P .R .
3 1 S a le s
D ebit
2 5 0
P u rch a se R e tu rn s & A llo w a n ce s
5 0 0 ~
3 1 In co m e S u m m a ry
3 1 In co m e S u m m a ry
26 0 0 0 ~
24 1 0 0 ~
M e rc h a n d is e In v e n to ry (b e g in .)
13 5 0 0 ~
A u to E x p e n se
3 1 S a le s
P A G E : ______
P .R .
D ebit
1 0 0 0 ~
C redit
20 0 0 0 ~
In co m e S u m m a ry
15 2 5 0 ~
In co m e S u m m a ry
P artic ulars
2003
Ja n
10 0 0 0 ~
P u rch a se D isco u n ts
M e rc h a n d is e In v e n to ry (e n d in g )
C redit
D ate
20 0 0 0 ~
10 3 5 0 ~
A u to E x p e n se
1 0 0 0 ~
C o s t o f G o o d s S o ld
5 0 0 0 ~
D e liv e ry E x p e n se
1 0 0 ~
D e p re cia tio n E x p . - A u to
3 0 0 ~
In su ra n ce E x p e n se
2 0 0 ~
D e liv e ry E x p e n se
1 0 0 ~
In v e n to ry S h o rta g e
D e p re cia tio n E x p . - A u to
3 0 0 ~
L o ss o n d isp o sa l o f A sse t
1 0 0 0 ~
2 0 0 ~
S a la rie s E x p e n se
1 5 0 0 ~
In su ra n ce E x p e n se
2 5 0 ~
L o ss o n d isp o sa l o f A sse t
1 0 0 0 ~
S a le s D isco u n ts
1 0 0 ~
P u rch a se s
5 0 0 0 ~
S a le s R e tu rn s & A llo w a n ce s
4 0 0 ~
S u p p lie s E x p e n se
5 0 0 ~
F re ig h t-in
5 0 0 ~
S a la rie s E x p e n se
1 5 0 0 ~
S a le s D isco u n ts
1 0 0 ~
S a le s R e tu rn s & A llo w a n ce s
4 0 0 ~
S u p p lie s E x p e n se
5 0 0 ~
3 1 In co m e S u m m a ry
3 1 J. S m ith , C a p ita l
3 1 In co m e S u m m a ry
J. S m ith , C a p ita l
3 1 J. S m ith , C a p ita l
J. S m ith , D ra w in g s
BAF 3M1 Note - Periodic v Perp
December 13, 2006
J. S m ith , D ra w in g s
1 9 0 0 ~
9 6 5 0 ~
J. S m ith , C a p ita l
9 6 5 0 ~
5 0 0 ~
5 0 0 ~
1 9 0 0 ~
5 0 0 ~
5 0 0 ~
J. Boulton