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Umer Saeed 2014-ag-8897Bilal Arif 2014-ag-8982Rana Zeeshan Ali Khan2014-ag-8979Mirza Ali Hafeez 2014-ag-8981Usman Saeed 2014-ag-9387
Financial Accounting
Inventory Systems
Inventory• Inventory is an asset that owned by the business for the purpose of selling to the customer or consumer.
Types of inventory system
It has two types which are following
► Periodic System► Perpetual System
Periodic SystemIn the periodic inventory system the varieties
unlimited.Ending inventory is calculated at the end of
specific period and normally one year.Periodic inventory system useful for
inexpensive goods where need for accurately tracking inventory does not exist.
Perpetual System
• In the periodic inventory system the varieties limited.
•Ending inventory is calculated after each transaction in store ledger card.
•Perpetual inventory system provides detailed record of inventory throughout year and hence, used by most companies.
•Separate store ledger •Card is used for each type of material
Valuation of inventory
First In First Out (FIFO)- first items purchase will be sold first.
Last In First Out (LIFO)- last item purchase will be sold first.
Weighted Average (WA)- make an average cost per unit purchase of the goods.
Cost of Goods Sold – Periodic System
________________________________________________________
Opening Inventory xxxxAdd:Purchase xxxxxCarriage Inward xxxxxImport Duty xxxxx
xxxxx(-) Return Outward (xxxx) xxxxxCost of Goods Available for sale xxxxx(-) Closing Stock (xxxx)Cost of Good Sold xxxxxx
Income Statement - Perpetual System
Sales xxxLess: Cost of Good SoldxxLess: Inventory Shortagexx xx
Gross Profit xxx
Journal Entries for Purchasing of Goods
Transaction Periodic Perpetual
Purchase goods on credit/cash
Dr Purchase Cr Trade Creditor/ Cash
Dr Stock Cr Trade Creditor /Cash
Return Outward/ purchase return
Dr Trade Creditor Cr Return Outward/purchase return
Dr Trade Creditor Cr Stock
Carriage Inward/ freight-in Dr Carriage Inward Cr Cash
Dr Stock Cr Cash
Payment to supplier/ creditor Dr Trade Creditor Cr Cash
Dr Trade Creditor Cr Cash
Journal Entries for Sales of GoodsTransactions Periodic Perpetual
Sales Goods on Credit / Cash
Dr Debtor/Cash Cr Sales
Dr Debtor / Cash Cr Sales
No entry to be made Dr Cost of Goods Sold Cr Stock
Return Inward/ sales return
Dr Return Inward Cr Debtor
Dr Return Inward Cr Debtor
No entry to be made Dr Stock Cr Cost of Good Sold
Collections Dr CashDr Sales Discount Cr Debtor
Dr CashDr Sales Discount Cr Debtor
If there is inventory shortage
No record to be made because it directly charge to COGS
Dr Inventory Shortage expense Cr Inventory