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Prepared by Diane Tanner University of North Florida

Chapter 28. Perpetual Inventory System. Prepared by Diane Tanner University of North Florida. Inventory Systems. Two systems available Periodic system Perpetual system Major differences in systems When/how inventory is updated How each sale is recorded.

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Prepared by Diane Tanner University of North Florida

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  1. Chapter 28 Perpetual Inventory System Prepared by Diane Tanner University of North Florida

  2. Inventory Systems • Two systems available • Periodic system • Perpetual system • Major differences in systems • When/how inventory is updated • How each sale is recorded

  3. Perpetual Inventory System UPC and bar codes make this method widely used • Inventory records are updated after each purchase and sale • Accounts used by merchandising companies • Inventory • Cost of goods sold

  4. Perpetual Inventory for Merchandisers • Purchase of merchandise • Increases Merchandise Inventory • Sale of merchandise • Expense phase • Decreases Inventory • Increases Cost of Goods Sold • Revenue phase • Increases Cash or Accounts Receivable • Increases Sales Revenue

  5. The Cost of Goods Sold Model Big Papa Always Eats Chicken Beginning inventory Purchases Available for sale Ending inventory Cost of goods sold + = _ =

  6. Cost of Inventory Purchased General rule: Inventory include all costs necessary to get the inventory ready to sell Invoice price Plus: Freight-in Sales taxes (if any) Less: Cash discounts Returns & allowances

  7. Freight Costs Incurred by Merchandisers • Freight-In • The shipping cost incurred to acquire inventory • Also known as Transportation-in • Pertains to inventory purchased • Freight-out • Shipping cost incurred to ship inventory to customers • Also known as Transportation-out, delivery expense, shipping expense • Pertains to inventory sold Product Cost Period Cost

  8. Freight-In/Freight-Out Reporting • Freight-In • Added to Inventory account in the balance sheet • Moved to Cost of Goods Sold on the Income Statement when the related inventory item is sold • Freight-out • Reported as Delivery Expense on the income statement when incurred Product Cost Period Cost

  9. Merchandise Transactions April 2: Ceradyne purchased 1000 mugs at $3 each on account. Merchandise inventory 3,000 Accounts payable 3,000 April 8: Ceradyne sold 200 mugs for $5 each on account.Accounts Receivable (200*$5) 1,000 Sales 1,000  Cost of goods sold (200*$3) 600 Merchandise inventory 600

  10. 10 Merchandise Inventory Reporting Balance Sheet Income Statement

  11. The End

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