Lesson 030 - Accounting for Merchandising Operations 4: Periodic and Perpetual Inventory System
Summary
TLDRThis educational video script delves into the intricacies of accounting for merchandising operations, focusing on the periodic and perpetual inventory systems. It explains the lack of detailed inventory records in the periodic system, which relies on year-end physical counts, versus the perpetual system, which maintains ongoing inventory records to support management decisions. The script illustrates the differences through various transactions, emphasizing the perpetual system's real-time inventory tracking and its impact on financial reporting.
Takeaways
- đ The video discusses accounting for merchandising operations, focusing on two inventory systems: periodic and perpetual.
- đ The periodic inventory system does not maintain detailed inventory records throughout the year, only requiring a physical count at the end of each period.
- đ The perpetual inventory system keeps detailed records of inventory, updating with every purchase and sale, which aids in management decision-making.
- đ For purchases, both systems record the transaction, but the perpetual system also updates the inventory balance.
- đ When returns occur, the periodic system adjusts accounts payable and purchase returns, while the perpetual system updates the inventory records accordingly.
- đ° Sales transactions are recorded by debiting accounts receivable and crediting sales in both systems, but the perpetual system also records the cost of goods sold and updates inventory.
- đ The cost of goods sold is an important figure derived from the perpetual inventory system, representing the inventory that has been sold.
- đĄ The perpetual inventory system provides real-time inventory data, which can be crucial for businesses to manage stock levels and sales strategies.
- đŒ The script includes an example of transaction recording for both systems, illustrating the differences in handling purchases, returns, and sales.
- đ The video transcript mentions International Accounting Standard 2, which guides the valuation of inventory in financial statements.
- đ The presenter concludes with a reminder to seek divine guidance for wisdom in understanding and applying the concepts taught.
Q & A
What are the two types of inventory systems discussed in the script?
-The two types of inventory systems discussed are the periodic inventory system and the perpetual inventory system.
What is the main difference between the periodic and perpetual inventory systems?
-The main difference is that the periodic inventory system does not maintain detailed records of inventory throughout the year, only requiring a physical count at the end of each period, while the perpetual inventory system maintains detailed records of inventory with every purchase and sale, updating the inventory balance in real-time.
How does the perpetual inventory system support management decision-making?
-The perpetual inventory system supports management decision-making by providing real-time information on the actual amount of inventory on hand, which can be used to make informed decisions about buying or purchasing inventories.
What is the significance of recording inventory transactions in the perpetual system?
-Recording inventory transactions in the perpetual system is significant because it allows for continuous tracking of inventory levels, which is crucial for accurate financial reporting and operational planning.
What is the initial transaction recorded on May 1st according to the script?
-The initial transaction on May 1st is a purchase of merchandise from Ryu Merchandising amounting to thirty thousand three hundred fifteen, with terms two over ten and over thirty.
How does the script describe the handling of a purchase return in the perpetual inventory system?
-In the perpetual inventory system, a purchase return is recorded by debiting accounts payable for the amount of the return and crediting merchandise inventory for the same amount, reflecting the reduction in inventory and accounts payable.
What is the entry recorded for a sale on account in the periodic inventory system?
-In the periodic inventory system, a sale on account is recorded by debiting accounts receivable for the selling price and crediting sales for the same amount, without adjusting the inventory records at the time of sale.
What additional entry is required in the perpetual inventory system when recording a sale?
-In the perpetual inventory system, an additional entry is required to record the cost of goods sold and to update the merchandise inventory, debiting cost of goods sold and crediting merchandise inventory for the cost of the merchandise sold.
How does the script illustrate the recording of a sales discount in the perpetual inventory system?
-The script illustrates the recording of a sales discount by debiting cash for the amount received after the discount, crediting accounts receivable for the original amount, and noting the discount taken.
What is the purpose of the handout 030 mentioned in the script?
-The purpose of handout 030 is to provide additional information related to the periodic and perpetual inventory systems, which is meant to enhance understanding of the concepts discussed in the script.
What does the script suggest for further learning after discussing inventory systems?
-The script suggests that the next lesson will be about special journals and subsidiary ledgers, indicating a continuation of the accounting topic.
Outlines
đ Introduction to Inventory Systems
The video introduces the topic of accounting for merchandising operations, focusing on two types of inventory systems: periodic and perpetual. Viewers are instructed to download handout 030, which covers these inventory systems. The periodic inventory system does not keep detailed records during the year, requiring physical counts at period end. In contrast, the perpetual inventory system maintains detailed records for every purchase and sale, aiding in management decisions.
đ Recording Purchases and Returns
The video explains how to record purchases and returns in both inventory systems using an example from May 1 and May 2. In the periodic system, purchases are debited to purchases, and returns are credited to purchase returns and allowances. In the perpetual system, purchases and returns update the merchandise inventory account directly. The advantages of the perpetual system in maintaining up-to-date inventory records are highlighted.
đ Sales Transactions in Inventory Systems
Sales transactions are illustrated with examples from May 3 and May 5. In the periodic system, sales are recorded by debiting accounts receivable and crediting sales. The perpetual system requires additional entries to update the cost of goods sold and merchandise inventory accounts. The process of recognizing inventory removal from the warehouse in the perpetual system is detailed, emphasizing the need for accurate inventory records.
đ Additional Transactions and Payments
Further transactions, including equipment purchases and payments to suppliers, are discussed. For equipment purchases, both systems record the transaction by debiting equipment and crediting cash. Payments to suppliers, such as on May 7, involve calculating and recording purchase discounts. The perpetual system also considers the cost of getting inventory to the buyer's location, as per international accounting standards. Sales on account and subsequent payments by customers are recorded similarly in both systems, with additional inventory adjustments in the perpetual system.
Mindmap
Keywords
đĄAccounting for Merchandising Operations
đĄPeriodic Inventory System
đĄPerpetual Inventory System
đĄJournal Entries
đĄPhysical Count
đĄPurchase Returns and Allowances
đĄCost of Goods Sold (COGS)
đĄGross Profit
đĄAccounts Receivable
đĄInventory Balance
đĄInternational Accounting Standard 2 (IAS 2)
Highlights
Introduction to the two types of inventory systems: periodic and perpetual.
Explanation of the periodic inventory system, including its lack of detailed inventory records during the year.
Importance of an actual physical count of goods at the end of each period in the periodic inventory system.
Description of the perpetual inventory system, which maintains detailed inventory records with each purchase and sale.
Advantages of the perpetual inventory system in supporting management decision-making by providing up-to-date inventory levels.
Comparison of journal entries for the purchase of merchandise in both periodic and perpetual inventory systems.
Handling of defective merchandise returns in both inventory systems.
Recording sales transactions in both periodic and perpetual inventory systems, including the calculation of gross profit.
Detailed steps for recording inventory adjustments in the perpetual inventory system after a sale.
Example of a sales transaction and the required entries in both inventory systems.
Explanation of the international accounting standards related to inventory costs.
Process of recording the payment of accounts payable with a purchase discount.
Steps for recording sales returns and the related accounting entries.
Final entries for cash received from customers paying their accounts in full.
Preview of the next lesson on special journals and subsidiary ledgers, emphasizing the importance of seeking guidance and wisdom.
Transcripts
[Music]
oh
[Music]
hello everybody so today we will be
discussing accounting for merchandising
operations
and we will be focusing on the two
different types of inventory system
which is the periodic inventory system
and the perpetual inventory system
before anything else please download
handout 030
which relates to periodic and perpetual
inventory system
the link is available in the description
box
okay the two types of inventory systems
are periodic inventory system and
perpetual inventory system
way of recording journal entries nadine
discussed nothing
in the previous lessons periodic
inventory system
but now i will be introducing you to
another inventory system
which is the perpetual inventory system
okay so let's talk about it one by one
under the system of periodic inventory
system there is no detailed record of
inventory
being maintained during the year only an
actual physical count of the goods
remaining on hand is required at the end
of each period
on proper inventory balances unless
actual physical account at the end of
the accounting period
okay so in the periodic inventory system
there is no maintenance
of
inventory system you don't know the
proper level of inventory
actual physical count at the end of the
accounting period
what if kala gitna an accounting period
okay so the periodic inventory system
does not maintain a detailed record of
inventory
so what happens is that we just adjust
the accounting records at the time
that we will just be doing an actual
physical count of the inventories that
we have
now the difference of a periodic
inventory system with the other system
the perpetual inventory system is that
we have a detailed inventory record
inventories
accounting system so in every purchase
and sale
i detailed
inventory records the advantage of
perpetual inventory system
is that in every purchase and sale we
know
the actual amount of inventory on hand
which can support management decision
making in
buying or purchasing inventories
okay so
inventory system
maintenance detailed records
but perpetual inventory system young
acting inventory records
update in every purchase and sale
i hope you understand the difference
between periodic inventory system and
perpetual inventory system
and to further maximize your learning we
will now be doing a problem okay so
let's try recording
these transactions which involves
both periodic inventory system and
perpetual inventory system
for may 1 the current pong purchase of
merchandise from ryu merchandising
amounting to thirty thousand three
hundred fifteen with the terms two over
ten and over thirty
the helpful ito a purchase of
merchandise on account kapagappa
periodic system yeah
in the previous lessons debit lantanam
purchases for the amount of 30
350 and credit accounts payable
named to rio merchandising your supplier
for another thirty thousand three
hundred fifty
however in perpetual inventory system
accounting records every purchase and
sale
inventory balance
for the amount of 30 350 and then credit
accounts payable
for thousand three hundred fifty let's
move on to may two
some eightu returned one thousand two
hundred pesos worth of defective
merchandise
to ryu merchandising
is a defective own is worth one thousand
two hundred
so satin periodic system
accounts payable to real merchandising
parama in one thousand two hundred
and then it is purchase returns and
allowances for 1200.
perpetual systems update on inventory
records
so perpetual system
merchandise inventory debit accounts
payable real merchandising 1200
and credit merchandise inventory for 1
200.
let's move on to meet returns action
sold merchandise on account to miss
friday vargas
worth sixteen thousand five hundred
fifty which is that is the selling price
that's on account has a two over ten and
over thirty and
terms the merchandise costs ten thousand
four hundred forty
annuity
forty ben anton attend then sixteen
thousand five hundred fifty
so you can grasp the situation that the
sales amount is sixteen thousand five
hundred fifty
and the cost of goods sold is ten
thousand four hundred forty
gross profit gross margin that is your
tuple
so in the periodic inventory system we
simply debit accounts receivable
from friday vargas which is 16 550
selling price
and then credit sales for sixteen
thousand five hundred
fifty so perpetual inventory system
ganon parent
on recording nothing on sales debit
accounts receivable friday vargas 16
550 and credit to sales sixteen thousand
five hundred fifty
pero pugna record tired on sales a
perpetual inventory system
again we need to take into consideration
that the inventory records and the
accounting
records or the inventory records in the
ledger
shall always be updated in every
purchase return or sale
so now entry na
recognize the inventory from the
warehouse dahil nagbenta tayo
debit cost of goods sold for 10 440
which is the cost of the merchandise
that was initially purchased bhagavata
okay friday vargas and then credit
merchandise inventory
ten thousand four hundred forty i hope
you understand
entry nothing required perpetual
inventory system
it's because we need to record the sales
transaction
and we also need to record the inventory
in the warehouse and accordingly
inventory records nothing and then for
may 5 that is just
a simple sales transaction to miss
yoon for 5680 which simply debits cash
and credit sales
that will still be the same entry for
the perpetual inventory system
but always remember in the perpetual
inventory system
meron tayong additional entry to record
the sales
of the goods na inventory nalumabas
warehouse so debit cost of goods sold
and credit merchandise inventory
for 3500 the cost of the merchandise
some a transaction amount purchased
computer set from
unsu sales amounting to 57
57 880
okay
set i partner companies equipment so in
this
inventory song entering attention eight
direction attend debit equipment credit
cash
and same amount and entry with the
perpetual inventory method
for maintenance i paid the real
merchandising in full sonar
merchandising merchandising is 30
350. merchandise
merchandising is twenty nine thousand
one hundred fifty
terms merchandising is two over ten and
over thirty
nine thousand one hundred fifty which is
five hundred eighty three pesos near a
record pool nothing purchase discount on
baba yarana
think here you merchandising is a cash
amount of twenty eight thousand five
hundred sixty seven
so perpetual inventory
ias 2 international accounting standard
2.
international accounting standard
hunting standard
inventory so according to international
accounting standard 2
the cost of inventory shall involve the
cost
of the purchase and then casamarinpu
uh binayaranathen in order for the
inventory to
have it in the location of the buyer
kayangapu in
nathaniel
and two percent discount okay let's
continue with may 11. somebody eleven a
month sold merchandise on account to
lana kala
twenty five thousand so alumni and the
regional entire accounts receivable from
la najala twenty 25 000 and then
credit sales potion and 25 000. that
will also be your same
entry to record sales under the
perpetual inventory system
per ira record ponatan's a perpetual
inventory system young pagla bus no
inventory is a warehouse
worth twenty two thousand debit cost of
goods sold twenty two thousand credit
merchandise inventory
twenty two thousand summative naman po
friday vargas paid her account in full
s
see miss friday vargas so begin punatin
simmons friday vargas and discount
okay so accounts receivable
is friday of august 16 550.
and the two percent of sixteen thousand
five hundred fifty
is three hundred thirty one pesos
received
in cash sixteen thousand two hundred
nineteen and that will be also
the same entry for the perpetual
inventory system
entry inventory
inventory okay
vargas and then lastly on may 25 la
nakana
la nakala paid her account in full so
tina nathan can be beginning
uh 25 000 young selling price
2 over 10 and over 30 on 10 days for now
may 11 and may 21
may 25 now so indeed discount period
we simply debit cash for the amount
received from island
of 25 000 credit accounts receivable for
25 000 and that would also be
the same entry in the prayer and the
perpetual inventory system
i hope you understand our lesson today
in our next lesson
would be about special journals and
subsidiary ledgers
always remember to ask the lord for his
guidance
and wisdom
call to me and i will answer you and
tell you great and unsearchable things
you do not know
thank you and have a great day
[Music]
me
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