Question

E8-7 Recording Purchases and Sales Using a Perpetual and Periodic Inventory System Demski Company reported beginning inventory of 100 units at a unit cost of $25. It engaged in the following purchase and sale transactions during 2007: Jan. 14 Sold 25 units at unit sales price of $40 on open account. April 9 Purchased 15 additional units at unit cost of $25 on open account. Sept. 2 Sold 50 units at sales price of $45 on open account. At the end of the 2007, a physical count showed that Demski Company had 40 units of inventory still on hand. Required: Record each transaction, assuming that Demski Company uses (a) a perpetual inventory system and (b) a periodic inventory system (including any necessary entries at December 31, the end of the accounting period).

Answer 1

There is difference in recording the entries in both methods. Perpetual method record COGS, when the sales occurs where as periodic records it at the end of the year. The same difference is there in the below entries:

Part a Perpetual inventory system

Date	Accounts Title	Dr	Cr
14-Jan	Trade Receivable	1000
	Sales (40*25)		1000
14-jan	Cost of sales[25*25]	625
	Inventory		625
9-Apr	Inventory (25*$15)	375
	Trade Payable		375
2-Sep	Trade Receivable	2250
	Sales (50*45)		2250
2 sep	cost of sales	1250
	Inventory		1250
Dec 31	No journal entry

Part b Period inventory system

Date	Accounts Title	Dr	Cr
14-Jan	Trade Receivable	1000
	Sales (40*25)		1000
9-Apr	Purchases (25*$15)	375
	Trade Payable		375
2-Sep	Trade Receivable	2250
	Sales (50*45)		2250
Dec 31	Cost of sales	2875
	Inventory		2875
31-Dec	Inventory [40*25]	1000
	Cost of sales		1000