PPT's Of Perpetual and periodic inventory method – inventories perpetual inventory method

1. Perpetual and Periodic Inventory Method
– Inventories Perpetual Inventory Method:

2.  Perpetual inventory method is a method where the inventory accounting is set aside
incessantly up-to-date and integrates the recurrent recording of additions to and
issues or sales of supplies on an every day basis. The method is appropriate to those
businesses where the sale articles are of huge value and posses a volume of sale
transactions every day.
Under this system, a ledger account (inventory account) is kept which presents the
cost of goods sold at any point of time during the financial accounting period. When a
perpetual inventory is maintained, a physical inventory must be taken as a minimum of
once a year.

3. PeriodicInventory Method:
Under this method, a physical inventory is generally taken only towards the year end or at
standard intervals. The inventory on hand and for this reason the cost of goods sold are
ascertained by the way of physical count at periodic intervals or towards the end of period.
This method is expensive as well as tiresome. To determine the cost of goods sold under this
method, the account books must present the following:
I. Opening and closing inventory account for the accounting period
II. The cost of the purchased inventory during the accounting period.

4. The Valuation Is Done As Under:
Inventory at the beginning of the accounting period
Add: Purchases of inventory during the accounting period
Cost of Goods sold obtainable for sale
Less: Inventory at the ending accounting period
Cost of Goods Sold
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5. The Below Is The Scheme Of Working Of The Periodic
Inventory Method:
I.
Most recent year’s closing inventory becomes the beginning inventory for the present
year. Trading account is given debit with the beginning year.
II.
Purchases during the accounting period are recorded in the Purchases Account and
this account is closed by transferring to trading account as stated above.

6. The Below Is The Scheme Of Working Of The Periodic
Inventory Method:
III. The closing inventory which is depended on physical count is documented in an account
called closing stock account. This account is transferred to the trading account by giving
debit to closing stock account and given credit to trading account. This account posses a
life for one day only. This is for the reason that, it becomes beginning stock of the
subsequent accounting period.
IV. The resultant outcome (i.e. the balancing figure in the trading account) is the cost of
goods sold.

7. Documenting Inventory Acquisitions and Sales:
S.No
1.
Perpetual Inventory System
Purchase of Inventory
Inventory A/c
To Supplies A/c
Periodic Inventory System
Purchase of Inventory
Purchases A/c
To Suppliers A/c
2.
Return of Inventory
Suppliers A/c
To Inventory A/c
Return of Inventory
Suppliers A/c
To Return Outwards A/c
3.
Freight Paid
Inventory A/c
To Cash A/c
Freight Paid
Carriage Inward A/c
To Cash A/c
4.
Sale of Inventory
Sale of Inventory

8. Documenting Inventory Acquisitions and Sales:
S.No
(i)
Perpetual Inventory System
Periodic Inventory System
Accounts Receivables A/c
To Sales A/c
Accounts Receivables A/c
To Sales A/c
(ii)
Cost of Goods Sold A/c
To Inventory A/c
No entry is applicable
5.
Return of Goods by Customer
Return of Goods by Customer
(i)
Return Inwards A/c
To Accounts Receivables A/c
Return Inwards A/c
To Accounts Receivables A/c
(ii)
Inventory A/c
To Cost of Goods Sold A/c
No entry is applicable

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