![]() ![]() This process involves taking a physical inventory or counting the end-of-period inventory to determine the quantity and the cost of the ending inventory and then applying this formula (the data is from the current example): Preparing financial statements under the periodic inventory system means calculating the cost of goods sold during the period and the ending inventory. Determining Cost of Goods Sold and Ending Inventory Therefore, before any adjusting entries, the balance in the merchandise inventory account will reflect the amount of inventory at the beginning of the year, as indicated in the following T-accounts. Instead, they accumulate in a separate purchases account.Ĭonsequently, there are no merchandise inventory account entries during the period. The periodic method does not record the cost of the inventory sold for a particular sale.įurthermore, as the journal entries show, inventory purchases are not debited to the merchandise inventory account. The information from the example data illustrates the perpetual inventory method. The example below shows the journal entries necessary to record inventories under the periodic system. Accounting Under the Periodic Inventory System: Journal Entries However, the sheer volume of transactions in some merchandising businesses makes it impossible to use anything but the periodic system. ![]() Instead, these items are determined at the end of each quarter, year, or accounting period.Īlthough this method offers ease of use for record-keeping, it hinders the managerial decision-making process. A periodic inventory system does not keep continuous track of ending inventories and the cost of goods sold. ![]()
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