Perpetual Inventory System Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 28
Inventory Systems Two systems available Periodic system Perpetual system Major differences in systems When/how inventory is updated How each sale is recorded 2
Inventory records are updated after each purchase and sale Accounts used by merchandising companies Inventory Cost of goods sold UPC and bar codes make this method widely used Perpetual Inventory System 3
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 4
Cost of Inventory Purchased Invoice price Less: Cash discounts Returns & allowances Plus: Freight-in Sales taxes (if any) General rule: Inventory includes all costs necessary to get the inventory ready to sell. 5
6 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 6
7 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 7
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 Sales1,000 Cost of goods sold (200*$3) 600 Merchandise inventory 600 8
9 Merchandise Inventory Reporting Merchandise Inventory Cost of Goods Sold Beginning Inventory 300 Purchase 3,000 Sale 600 Ending 2, Balance Sheet Income Statement 9
10 The End