Group members

Umer Saeed 2014-ag-8897Bilal Arif 2014-ag-8982Rana Zeeshan Ali Khan2014-ag-8979Mirza Ali Hafeez 2014-ag-8981Usman Saeed 2014-ag-9387

Financial Accounting

Inventory Systems

Inventory• Inventory is an asset that owned by the business for the purpose of selling to the customer or consumer.

Types of inventory system

It has two types which are following

► Periodic System► Perpetual System

Periodic SystemIn the periodic inventory system the varieties

unlimited.Ending inventory is calculated at the end of

specific period and normally one year.Periodic inventory system useful for

inexpensive goods where need for accurately tracking inventory does not exist.

Perpetual System

• In the periodic inventory system the varieties limited.

•Ending inventory is calculated after each transaction in store ledger card.

•Perpetual inventory system provides detailed record of inventory throughout year and hence, used by most companies.

•Separate store ledger •Card is used for each type of material

Valuation of inventory

First In First Out (FIFO)- first items purchase will be sold first.

Last In First Out (LIFO)- last item purchase will be sold first.

Weighted Average (WA)- make an average cost per unit purchase of the goods.

Cost of Goods Sold – Periodic System

________________________________________________________

Opening Inventory xxxxAdd:Purchase xxxxxCarriage Inward xxxxxImport Duty xxxxx

xxxxx(-) Return Outward (xxxx) xxxxxCost of Goods Available for sale xxxxx(-) Closing Stock (xxxx)Cost of Good Sold xxxxxx

Income Statement - Perpetual System

Sales xxxLess: Cost of Good SoldxxLess: Inventory Shortagexx xx

Gross Profit xxx

Journal Entries for Purchasing of Goods

Transaction Periodic Perpetual

Purchase goods on credit/cash

Dr Purchase Cr Trade Creditor/ Cash

Dr Stock Cr Trade Creditor /Cash

Return Outward/ purchase return

Dr Trade Creditor Cr Return Outward/purchase return

Dr Trade Creditor Cr Stock

Carriage Inward/ freight-in Dr Carriage Inward Cr Cash

Dr Stock Cr Cash

Payment to supplier/ creditor Dr Trade Creditor Cr Cash

Dr Trade Creditor Cr Cash

Journal Entries for Sales of GoodsTransactions Periodic Perpetual

Sales Goods on Credit / Cash

Dr Debtor/Cash Cr Sales

Dr Debtor / Cash Cr Sales

No entry to be made Dr Cost of Goods Sold Cr Stock

Return Inward/ sales return

Dr Return Inward Cr Debtor

Dr Return Inward Cr Debtor

No entry to be made Dr Stock Cr Cost of Good Sold

Collections Dr CashDr Sales Discount Cr Debtor

Dr CashDr Sales Discount Cr Debtor

If there is inventory shortage

No record to be made because it directly charge to COGS

Dr Inventory Shortage expense Cr Inventory