PERIODIC INVENTORY SYSTEM
In the periodic inventory system, there is no continuous recording of the
trading stock movements.
Cost of Sales is NOT recorded, and the only way to determine stock on
hand is by doing a stock take (physical stock count).
The following takes place at year-end:
1.
Adjustment
Given:
The value of stock on hand at year end according to the physical
stock take is R 500.
LEDGER ACCOUNTS FOR PERIODIC INVENTORY SYSTEM
Accounts for:
Opening Stock Purchases
-
General Journal entry:
Trading Stock
dr.
Closing Stock
cr.
opening balance of stock
to record any stock purchased during
the year.
Donations and drawings of stock are deducted
from the purchases account.
-
500
General Ledger:
Trading Stock
Carriage on purchases - carriage that is paid on any stock during the
year.
Creditors Allowances
500
Closing Stock
500
500
stock that id returned to the supplier during
the year.
closed off to Purchases at year end, to
determine net purchases.
2.
Closing Stock -
closing balance of stock, on hand at year-end.
Trading Stock -
only use on 1 day and last day of the financial
year, to reflect stock on hand in the balance sheet.
Closing Transfers
General Journal Entries:
st
(a)
CALCULATIONS
The only way of finding the cost of sales figure is to calculate it:
 Calculation for Cost of Sales !
+
+
=
=
J Cansfield
Opening Stock
Net Purchases (Purchases – Creditors Allowances)
Carriage on Purchases
Goods available for sale
Closing Stock
COST OF SALES
(b)
(c)
Trading Account
2400
Opening Stock
Purchases (net)
Carriage on Purchases
400
1900
100
Sales
Closing Stock
Trading Account
4600
500
5100
Trading Account
Profit and loss
(transfer of Gross profit)
2700
2700
Check by:
EXAMPLE: Perpetual vs periodic.
1. Draw rough T’s for the transactions if Baker uses the Perpetual
inventory system.
2. Draw rough T’s for the transactions if Baker users the Periodic
inventory system.
3. Analyse the following transactions of Bakers , under the headings
account Debit; account Credit and amount. If Bakers Corner Store
uses the periodic inventory system.
1.Calculating Cost of Sales:
+
+
O/S
Purchases
Carriage
=
C/S
Cost of Sales
400
1900
100
2400
500
1900
Baker stores had stock on hand at the beginning of the year, valued at
R1000.
2.Find Gross Profit:
=
Sales
Cost of Sales
Gross Profit
Transactions:
1.
4600
1900
2700
Purchased merchandise and paid by cheque, R600.
2.
Issued R100 worth of stock as a donation to the Help the
Poor Club.
3.
Sold goods on credit to K. Watson, R150.
4.
K. Watson returned damaged goods. Issued a credit note
for R30 to him.
5.
The owner, J. Baker, took stock for personal use, R300.
6.
Cash sales for the day as per cash register roll,
7.
Issued a cheque to J. Carter for carriage on purchases,
R195.
8.
J. Morris paid his account of R240 by cheque, R230.
Allowed him R10 cash discount.
EXERCISE 6.
Complete the following.
Opening Stock (1/3/94)
Purchases
Carriage on Purchases
Cost of goods available for sale
Closing Stock (28/2/95)
Cost of Sales
Gross Profit
Sales
J Cansfield
(a)
760
(i)
210
4 460
1 230
(ii)
(iii)
4 030
(b)
Nil
5 060
(i)
5 180
Nil
(ii)
4 540
(iii)
(c)
Nil
(i)
Nil
1 805
(ii)
1 340
(iii)
2 900
The value of stock on had as per physical stock take was, R…
R2 500.
Example: Bakers : Periodic System
No
Account Debit
Account Credit
A
1
2
3
4
5
6
7
8
9
10
FINANCIAL STATEMENTS FOR PERIODIC INVENTORY SYSTEM
Income Statement for the year ended _________________________
Notes
Sales
Cost of Sales
R
(
)
(
)
(
)
(
)
Gross Profit
Other Operating Income
…
…
Gross Operating Income
Operating Expenses
…
…
Operating Profit (Loss)
Interest Income
1
Profit (Loss) before interest expense
Interest Expense
2
Net Profit (Loss) for the year/ period
7
CALCULATION FOR COST OF SALES
Opening Stock
Net Purchases
Carriage
Closing Stock
Notes to Financial Statements
4
INVENTORIES
Trading Inventory
Consumable Stores on Hand
This is your closing stock amount
J Cansfield
O
L