A perpetual inventory system has more record keeping as compare to a periodic system. As the use of the scanner devices is increased in merchandising companies therefore, perpetual system is also getting fame. It gives more details about what, where and when products are sold.
Basically a perpetual inventory system is different from a periodic system on the basis of accounting entries. In this case an extra entry is made in which cost of goods sold is debited and merchandise inventory is credited. The benefit of this entry is that at the end of the financial period, total goods sold are achieved.
For example suppose,
Beginning inventory is 100 units with a price of $6 = 600
Purchases are 900 units with a price of $6 = $5400
Sales are total 600 units with a price of $12 =$7,200
Ending inventory is 400
units with a price of $6 = $2,40
Under a perpetual system:
Beginning inventory shows $ 600 in inventory
Purchases shows: Inventory debit at $ 5400 and Account payable credit at $ 5400
Sales entries:
Account Receivables debit at $7,200 while sales are credited at $7,200. Now make another entry where costs of goods sold are debited at $3600 and inventory will be credited at $3600.
Now the end result shows an ending balance of $2400. I hope now you are clear about it!
Basically a perpetual inventory system is different from a periodic system on the basis of accounting entries. In this case an extra entry is made in which cost of goods sold is debited and merchandise inventory is credited. The benefit of this entry is that at the end of the financial period, total goods sold are achieved.
For example suppose,
Beginning inventory is 100 units with a price of $6 = 600
Purchases are 900 units with a price of $6 = $5400
Sales are total 600 units with a price of $12 =$7,200
Ending inventory is 400
units with a price of $6 = $2,40
Under a perpetual system:
Beginning inventory shows $ 600 in inventory
Purchases shows: Inventory debit at $ 5400 and Account payable credit at $ 5400
Sales entries:
Account Receivables debit at $7,200 while sales are credited at $7,200. Now make another entry where costs of goods sold are debited at $3600 and inventory will be credited at $3600.
Now the end result shows an ending balance of $2400. I hope now you are clear about it!
