Inventory
(Periodic system)
Cathy Saenger, Senior Lecturer,
Eastern Institute of Technology © Pearson 2011

This is a system, whereby the inventory is manually counted before cost of sales can be calculated
Ch6B - Periodic system

• Regular stocktakes necessary
• Uses a Purchases expense account
• Cost of sales to be manually calculated
• Inventory levels only known after a physical stocktake is done
• Closing inventory figure becomes the opening inventory figure in the next period
Ch6B - Periodic system

Opening inventory
Add Purchases
Less Closing inventory
Cost of Sales
$50,000
60,000
110,000
40,000
$70,000
Other items could also be included
Ch6B - Periodic system

Opening inventory
Add Purchases
Add Customs Duty
Add Freight In
Less Closing inventory
Cost of Sales
$50,000
58,000
10,000
5,000
123,000
40,000
$83,000
Any costs incurred in getting the product ready for sale, are included in the cost of sales
Ch6B - Periodic system

Opening inventory
Add Purchases
Cost of Sales
$50,000
60,000
110,000
40,000
$70,000
From last year’s
Inventory figure
Where did we get the Opening inventory figure from?
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
$20,000
8,000
15,000
4,000
100,000
40,000
Let’s have a look at a list of accounts
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Opening inventory
$20,000
8,000
15,000
4,000
100,000
40,000
The previous year’s Inventory figure, will become the current year’s Opening inventory figure on 1 April
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Opening inventory
$20,000
8,000
15,000
4,000
100,000
40,000
General Journal
Date Account Titles
20X2
1/4 Opening inventory
Inventory
Being entry to record opening inventory at
1 April 20X2
Ref no Debit
4,000
Credit
4,000
We know that Inventory has a debit balance and therefore we need to credit it to transfer it to Opening inventory
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Opening inventory
$20,000
8,000
15,000
4,000
100,000
40,000
After a stocktake has been done at the end of the period (31 March), we need to record the value of the counted stock
But, what about the Closing inventory figure?
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Inventory
Opening inventory
Closing inventory
$20,000
8,000
15,000
4,000
100,000
40,000
15,000
15,000
The Inventory account at this stage shows a zero balance after the transfer to the Opening inventory account
The counted stock at 31 March represents the Inventory current asset of the business
The counted stock at 31 March also represents the Closing inventory used to calculate the cost of sales
Let’s say that the counted stock at 31 March X2 is $15,000
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Inventory
Opening inventory
Closing inventory
$20,000
8,000
15,000
4,000
100,000
40,000
15,000
15,000
Now let’s do it the proper way with debits and credits
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Inventory
Opening inventory
Closing inventory
$20,000
8,000
15,000
4,000
100,000
40,000
15,000
15,000
General Journal
Date
20X2
Account Titles
31/3 Inventory
Closing inventory
Being entry to record closing inventory at 31
March 20X2
Ref no Debit
15,000
Credit
15,000
We know that Inventory is an asset and therefore we need to debit it to
Ch6B - Periodic system

List of accounts as at 31 March X2
Bank
Accounts Payable
Accounts Receivable
Inventory (1/4/X1)
Sales
Purchases
Inventory
Opening inventory
Closing inventory
$20,000
8,000
15,000
4,000
100,000
40,000
15,000
15,000
Let’s see what we have so far!
Ch6B - Periodic system

General Journal
Date Account Titles
20X2
1/4 Opening inventory
Inventory
31/3 Inventory
Closing inventory
Ref no Debit
4,000
15,000
General Ledger
Date
31/3
1/4
31/3
Details
INVENTORY
Opening Balance
Opening inventory
Closing inventory
1/4
OPENING INVENTORY
Inventory
Dr
15,000
4,000
Cr
4,000
31/3
CLOSING INVENTORY
Inventory
Ch6B - Periodic system
15,000
Bal
4,000 Dr
NIL
15,000 Dr
4,000
15,000
Dr
Cr
Credit
4,000
15,000

General Ledger
Date Details
31/3
1/4
INVENTORY
Opening Balance
Opening inventory
31/3 Closing inventory
1/4
OPENING INVENTORY
Inventory
31/3
CLOSING INVENTORY
Inventory
Dr
15,000
4,000
Cr
4,000
Bal
4,000 Dr
NIL
15,000 Dr
4,000 Dr
15,000 15,000 Cr
Closing inventory and Opening inventory figures are used to calculate the Cost of Sales in the Income
Statement
Inventory is a current asset shown in the Balance Sheet
Ch6B - Periodic system

Don’t we just love
Accounting?
Ch6B - Periodic system