Accounting and Finance Foundations

Unit 6

Accounting and Finance Foundations Unit 6: Journalizing 502

Lesson 17.4 Inventory (cont’d)

Journalizing

Chapter 17Chapter 6

Student Guide

The second type of inventory system is a periodic inventory system. A periodic system records inventory

purchases and sales in a purchases account and requires accounting for inventory transactions at the end

of the accounting period. Let’s take a look at how a periodic inventory system would handle the inventory

transactions that we dealt with just a minute ago.

The Go-Getter Company purchases 100 units of merchandise for $100.00 on account on 01/01/20YY.

When using the periodic inventory system, you would make the following entry into the general journal:

01/01/20YY

Debit Credit

Purchases $100.00

Accounts Payable $100.00

Now, the company sells 2 units for a total of $5.00 on credit on 01/15/20YY. You should make the following

entry into the general journal when the merchandise is sold if using the periodic inventory system:

01/15/20YY

Debit Credit

Accounts Receivable $5.00

Sales $500

Then, if using a periodic inventory system, you should create the following entries at the end of the

accounting period:

01/15/20YY

Debit Credit

Merchandise Inventory $98.00

Purchases $98.00

How do we calculate the ending merchandise inventory? Under a periodic system, you calculate the ending

inventory as follows:

Beginning Inventory + Purchases During the Accounting Period – Cost of Goods Sold = Ending Inventory

$100 + $0 – $2 = $98