Which of the following is not considered an account title under periodic inventory system
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Under periodic inventory system inventory account is not updated for each purchase and each sale. All purchases are debited to purchases account. At the end of the period, the total in purchases account is added to the beginning balance of the inventory to compute cost of goods available for sale. The ending inventory is determined at the end of the period by a physical count and subtracted from
the cost of goods available for sale to compute the cost of goods sold. The general formula to compute cost of goods sold under periodic inventory system is given below: Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory The following information belongs to John company, a retailer of high-end fashion products: Required: Compute cost of goods sold for the year 2016 assuming the company uses a periodic inventory system. Solution:Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory Journal entries in a periodic inventory system:(1). When goods are purchased from supplier:  (2) When expenses are incurred to obtain goods for sale – freight-in, insurance etc: (3). When goods are returned to supplier: (4). When payment is made to supplier: (5). When goods are sold to customers: (6). When goods are returned by customers: (7). When cash is collected from customers: (8). At the end of the period: Example:The following information belongs to Paradise Hardware Store: Beginning inventory: 200 units at $12 = $2,400 Required: Make journal entries to record above transactions assuming a periodic inventory system is used by Paradise Hardware Store. Solution:* (21,600 + 2,400) – 9,600 Periodic inventory system is usually used by companies that buy and sell a wide variety of inexpensive products. A disadvantage of periodic inventory system is that overages and shortages of inventory are buried in cost of goods sold because no accounting record is available against which to compare physical count of inventory. Which of the following accounts is not used under periodic inventory system?Answer and Explanation: The correct option is b. purchases. Purchases are measured at the end of each period under the periodic inventory system, not the perpetual inventory system.
What accounts are used in a periodic inventory system?Under the periodic inventory system, all purchases made between physical inventory counts are recorded in a purchases account. When a physical inventory count is done, the balance in the purchases account is then shifted into the inventory account, which in turn is adjusted to match the cost of the ending inventory.
What is an example of periodic inventory?One example of a business that would use a periodic system is a food bank. They would frequently count the physical inventory to determine the closing inventory quantity."
What account is used in a perpetual inventory system but not in a periodic system?Inventory account is used in a perpetual inventory system but not in a periodic system of inventory. As, under perpetual inventory system, all purchases are directly adjusted to the inventory account i.e. all purchases are debited to inventory account whereas all purchase return are credited to inventory account.
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