What is Periodic inventory system
As we have discussed in the previous session, in order to prepare a
statement of comprehensive income we have to calculate gross profit,
which requires the calculation of the cost of sales figures.
statement of comprehensive income we have to calculate gross profit,
which requires the calculation of the cost of sales figures.
There are two methods for the recording of inventory so as to allow the
calculation of the cost of sales:-
calculation of the cost of sales:-
- Perpetual inventory system what is a perpetual inventory system
- Periodic Inventory system
Here in this session, we will analyze what is a periodic inventory system.
Periodic Inventory system
The period inventory system is also known as a Period end system.
Under the periodic inventory system, two ledger accounts are used
- Purchase account which is used to record all purchases during the
year - Inventory account which is used to record the value of inventory at
the beginning of the financial year
Under the periodic inventory system, Inventory balance and COGS are
not updated after every sale and are calculated at the year-end hence no
COGS is maintained in trial Balance during the year. A separate account
for opening stock, Purchases, Return outward and carriage inward for
accumulating the cost of inventory is maintained.
not updated after every sale and are calculated at the year-end hence no
COGS is maintained in trial Balance during the year. A separate account
for opening stock, Purchases, Return outward and carriage inward for
accumulating the cost of inventory is maintained.
Physical counting is performed to determine closing stock, the amount
of closing stock is determined and the remaining amount is COGS.
of closing stock is determined and the remaining amount is COGS.
In periodic inventory system Quantity schedule is used
Example:- Following is an example of Quantity schedule
SOLUTION VIA FIFO METHOD:-
Closing stock
COGS:-
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