Chapter 7
Inventory: Merchandising Transactions
174
On the other hand, some small merchandising companies such as a small convenience store may
not have scanning technology in place. Without the scanning technology, the business can track
its sales, but inventory and COGS will not be updated automatically or regularly. The
periodic
inventory system
only updates the inventory and COGS values after physically counting the items
on hand.These inventory counts occur periodically, usually at the end of the month or year.
Figure 7.4 highlights the difference between the perpetual and periodic inventory system. It shows
sample revenue and COGS amounts for a company under both systems over a period of three
months. Notice that the perpetual system updates COGS continuously while the periodic system
updates COGS only when a physical inventory count is performed (at the end of March).
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
INCOME STATEMENT
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
COST OF GOODS SOLD
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
GROSS PROFIT
SALES REVENUE
SALES REVENUE
SALES REVENUE
SALES REVENUE
SALES REVENUE
SALES REVENUE
SALES REVENUE
SALES REVENUE
+ $20,000 CR
+ $20,000 CR
+ $15,000 CR
+ $15,000 CR
+ $22,000 CR
+ $22,000 CR
+ $57,000 CR
+ $57,000 CR
+ $10,000 DR
(Unknown)
(Unknown)
(Unknown)
(Unknown)
(Unknown)
(Unknown)
+ $7,000 DR
+ $11,000 DR
+ $28,000 DR
+ $28,000 DR
$10,000
$8,000
$11,000
$29,000
$29,000
Jan
Jan
* COGS is updated continuously.
** COGS is only updated when a physical count of inventory is performed.
Feb
Feb
Mar
Mar
Jan – Mar
Jan – Mar
Perpetual Inventory System*
Periodic Inventory System**
________________
figure 7.4
Perpetual inventory systems are more commonly used in today’s computerized environment. In
this textbook, unless otherwise stated, we will always assume the perpetual inventory system is
used. We will now examine how to record various transactions regarding the purchase and sale of
inventory under the perpetual inventory system.
