Question

please help with B. and C.

NL Receipt of inventory. New Sales Company has just gone into business and is starting to receive inventory items it has ordered. The problem facing New Sales is that no one knows whether the system to use should be the periodic or perpetual system. Complete parts a, b, and c. Record each of the following transactions using the periodic method. $50. Goods costing $35 were damaged and were returned to the seller, the seller reduced the NED Purchased $5,000 of goods on account. The freight charges on the goods were May 6 amount owed by $35. May 9 May 26 New Sales found that items costing $95 were not ordered and could not be used. New Sales returned the items, and the supplier reduced the amount owed. Paid the supplier the amount owed. Periodic Inventory Entries: 516 Inuntory Soso Accs kizabe Cash Arets Payable truenday 819 Acets Regalte Thurtery 526 feets payable 10 w 4270 175

Answer 1

Accounting of the inventory on perpetual Method: Brief Explanation:

Perputal method of inventory is a method in which the inventory purchased is not shown through the purchase account but it is shown in Inventory account. this method is basically to treat the inventory on seperate basis and not on the creditor generated on account of purchase account. Through this a person can directly look into the inventory account to gather the information for the inventory value in hand along with the physical quantity.

Journal Entry:

May 6:

Inventory A/c Dr $5000 ( Goods Purchased for $5000 is debited to Inventory account) (Increase in Asset is Debited)

Inventory A/c Dr $50 ( Freight charges paid on the procurement of the goods will be included in the value of the inventory and hence they are debited to the inventory account) (Increase in Asset is Debited)

Inventory A/c Cr $35 (The goods returned will reduce the value of the inventory in hand and hence the same is credited to the inventory account) (Decrease in Asset is credited)

Supplier Account Payable Cr $5015 (Balance amount payable to the supplier on account of inventory purchased)

May 9:

Supplier Account Payable Dr $95 ( Items not ordered were returned back to the supplier and the same amount was then adjusted in the supplier account in our books, hence the supplier account is debited) (Decrease in Liability is Debited)

Inventory Account Cr $95 (Since the item are not forming anymore to our inventory account and has already been reduced, hence we will reduce our inventory balance with this amount) (Decrease in Asset is credited)

May 26:

Supplier Account Payable Dr $4920 (Balance amount in the account of supplier will be debited when the account is getting settled and the payment is made to the supplier) (Decrease in Liability is Debited)

Bank Account Cr $4920 (Balance amount owned to supplier is paid through Bank) (Reduction in Asset is Credited)

Part C

The main difference between the perpetual and periodic method of inventory is that:

1. In periodic inventory you value the inventory only on the price for the quantity where as the expense directly related to the procurement of the inventory form part of the value of the inventory under Perpetual method.

2. the cost of good sold under periodic method will only show the cost for the inventory that has been sold but under the perpetual method, the cost of good sold will reflect the true picture of the value of the inventory since it has adjusted the price to procure and price to discard the inventory.