Definitions
Goods available for sale
What is Inventory
Record the journal entry for purchasing $5 000 of goods with cash
Dr. Purchases 5 000
Cr. Cash 5 000
What is subtracted from purchases to determine net purchases?
What is Purchase Returns & Allowances
What is Purchase Discounts
What is the primary purpose of a physical inventory count in the periodic inventory system?
To determine the ending inventory for calculating COGS
An accounting method where inventory updates are recorded at specific intervals
What is Periodic Inventory System
Record a sale of $3 000 worth of goods on account.
Dr. Accounts Receivable 3 000
Cr. Sales 3 000
What is subtracted from purchases to determine net purchase?
What is Purchase Returns & Allowances
What is Purchase Discounts
In the periodic inventory system, where are inventory purchases recorded initially?
What is Purchase
An account to temporarily record the cost of new inventory acquired during the accounting period
What is Purchase
Record the entry for returning $1 000 of goods to the supplier, receiving a cheque
Dr. Cash 1 000
Cr. Purchase Returns & Allowance 1 000
Calculate COGS:
Beginning Inventory = $4 000
Purchases = $8 000
Ending Inventory = $2 000
$10 000 ($4 000 + $8 000 - $2 000)
How does the periodic inventory system differ from the perpetual inventory system in tracking the inventory
The periodic system updates inventory records after periods
Perpetual system updates continuously after transaction
Shipping paid buy the buyer
What is Freight In
What entry adjusts inventory at the end of the year?
Dr. COGS
Cr. Inventory
Sales = $80 000
Sales Returns = $10 000
Sales Discounts = $5 000
Operating Expenses = $6 000
COGS = $40 000
$19 000 ($80 000 - $10 000 - $5 000 - $6 000 - $40 000)
Dr. COGS
Cr. Inventory
at the end of the period
What is Adjustment
What Does COGS Stand For? What is the formula?
What is Cost Of Goods Sold
COGS = Beginning Inventory + Purchases - Ending Inventory
On January 10th, a company purchased $15,000 worth of goods on account. On January 15th, the company returned $3,000 of defective goods to the supplier.
January 10th
Dr. Purchases 15 000
Cr. Accounts Payable 15 000
January 15th
Dr. Accounts Payable 3 000
Cr. Purchase Returns & Allowances 3 000
What is the formula for net income?
Net Sales - COGS - Operating Expenses
Why might a business with infrequent inventory turnover prefer the periodic inventory system?
Simpler and more cost efficient
Better for Small Businesses