Perpetual system accounting9/16/2023 Sometimes purchased inventory can be returned to the supplier, for example, due to improper quality. In this instance, journal entries should look as follows: Purchase return Let’s assume that RetailX LTD makes all purchases and sales on credit. If purchase or sale is made for cash, the cash account should be used instead of accounts payable and accounts receivable respectively. The second one is recorded by debiting the cost of goods sold account and crediting the inventory account. The first one is recorded by debiting the accounts receivable account and crediting the sales account. In turn, each sale requires two entries to be made in the general journal. It is recorded by debiting the inventory account and crediting accounts payable as follows: In the perpetual inventory system, each purchase requires one entry to be made in the general journal. In turn, the balance of inventory account amounted to $346,500 as of 31st of March. RetailX LTD has made the following transactions during March:Īssume that the retailer is using the FIFO inventory method. Common examples include FIFO, LIFO, average cost, and specific identification methods. The cost of goods sold and ending inventory depend on the inventory method being used. Purchase of inventory is recorded through one journal entry by debiting the inventory account and crediting the accounts payable by the value of cost of goods sold if a purchase was made on credit. The second one is recorded by debiting the inventory account and crediting the accounts payable account if the sale was made on credit. The first one is recorded by debiting accounts receivable and crediting the sales account by the sale value of inventory. In the perpetual inventory system, each sales transaction requires two journal entries. Common examples of such transactions are purchase and sale of inventory, purchase and sales returns, and purchase and sales discounts. This system assumes that the inventory account and the cost of goods sold (COGS) account are updated after each transaction. The perpetual inventory system is used in accounting to keep inventory records.
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