Chapter 28
Managerial Accounting
Perpetual Inventory
System
Prepared by Diane Tanner
University of North Florida
Inventory Systems
 Two systems available
 Periodic system
 Perpetual system
 Major differences in systems
 When/how inventory is updated
 How each sale is recorded
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Perpetual Inventory System
UPC and bar codes make this method
widely used
 Inventory records are updated after each
purchase and sale
 Accounts used by merchandising companies
Inventory
Cost of goods sold
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Perpetual Inventory Accounting
for Merchandisers
 Purchase of merchandise
 Increase Merchandise Inventory
 Sale of merchandise
 Expense phase
 Decrease Inventory
 Increase Cost of Goods Sold
 Revenue phase
 Increase Cash or Accounts Receivable
 Increase Sales Revenue
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Cost of Inventory Purchased
General rule:
Inventory includes all costs necessary to
get the inventory ready to sell.
Invoice price
Plus: Freight-in
Sales taxes (if any)
Less: Cash discounts
Returns & allowances
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Freight Costs Incurred by Merchandisers
 Freight-In
 The shipping cost incurred to acquire
inventory
 Also known as Transportation-in
 Pertains to inventory purchased
 Freight-out
 Shipping cost incurred to ship inventory
to customers
 Also known as Transportation-out,
delivery expense, shipping expense
 Pertains to inventory sold
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Freight-In/Freight-Out Reporting
 Freight-In
 Added to Inventory account in the
balance sheet
 Moved to Cost of Goods Sold on the
income statement when the related
inventory item is sold
 Freight-out
 Reported as Delivery Expense on the
income statement when incurred
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Merchandise Transactions
April 2: Ceradyne purchased 1000 mugs at $3 each on
account.
Merchandise inventory
3,000
Accounts payable
3,000
April 8: Ceradyne sold 200 mugs for $5 each on account.
Accounts Receivable (200*$5)
1,000
Sales
1,000
Cost of goods sold (200*$3)
600
Merchandise inventory
600
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Merchandise Inventory Reporting
Merchandise
Inventory
Beginning
Inventory
300
Purchase
3,000
600
Sale
Ending
2,700
Cost of Goods Sold
600
600
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The End
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