1. Periodic Inventory Transactions

2. Periodic Inventory System Reminder: – Periodic Inventory System is when a business counts their inventory once a fiscal period – Are more concerned with knowing the cost of Purchases throughout a period – DOES NOT keep track of inventory throughout the period

3. Periodic Inventory System The newest account is called “Purchases” – Anytime the business purchases inventory – purchases is affected – Treat Purchases as an expense A normal cost of running the business, even though inventory is tangible – Purchases is a Debit account (like expenses) To increase we will DR Very rarely decreases – we will discuss – Part of the Cost of Goods section on the income statement

4. The Periodic Inventory Method Cash Purchase of Merchandise Jun. 8 – Purchases sports equipment from Schwinn, $500, Cheque 86 DateParticulars P.R. DebitCredit 1 1 2 2 3 3 Jun 8 Purchases 500 Cash 500 Purchase Sports Equipment, Cheque 86

5. The Periodic Inventory Method Credit Purchase of Merchandise Jun. 9 – Purchases sports equipment from Spalding, invoice 2974, $200 on account DateParticulars P.R. DebitCredit 1 1 2 2 3 3 Jun 9 Purchases 200 A/P Spalding 200 Purchased Equipment, invoice 2974

6. Purchase Returns & Allowances As a consumer, you are well aware that we do not always keep everything we buy – Often it is necessary to return the goods for a refund This occurs more often in business – Businesses purchase in much larger quantities – Not uncommon to find a few malfunctioning/errors in an order of an entire pallet, box, etc.

7. Purchase Returns & Allowances We have recorded the purchase right when it happens If the business returns goods – a contra expense account is created (Called Purchase Returns & Allowances) Expenses are normally DR accounts – Thus – contra expenses are CR accounts Is an I/S account that occurs in the COGS section

8. The Periodic Inventory Method Goods Returned for Cash Refund (Purchase Return & Allowances) Jun. 10 – Received refund Cheque for $100 from Schwinn for goods returned. DateParticulars P.R. DebitCredit 1 1 2 2 3 3 Jun 10 Cash 100 Purchases Ret. & Allow. 100 Cash Refund from Schwinn

9. The Periodic Inventory Method Goods returned for Credit (Purchase Returns & Allowances) Jun. 11 – Received Credit Invoice 981 for $200 from Spalding Ltd. for returned tennis equipment. DateParticulars P.R. DebitCredit 1 1 2 2 3 3 Jun 11 A/P Spalding Ltd 500 Purchases Ret. & Allow 500 Returned Defective Equipment, invoice 981

10. Freight - In Often, a business has to pay for the shipping of the inventory to their location – Establishing an account called Freight In Does not always occur – is negotiated during the terms of purchase who is paying for the freight Freight – In is adds to the purchase cost – Thus, is a Debit account – Also, an I/S account that occurs in the COGS section

11. The Periodic Inventory Method Freight In Freight In is part of the Cost Of Goods Sold Account (Freight Out is not) DateParticulars P.R. DebitCredit 1 1 2 2 3 3 Jun 16 Freight In 200 Cash 200

12. The Merchandising Company New AccountType of Account 1. SalesRevenue 2. Sales DiscountsContra-Revenue 3. Sales Returns & Allowances Contra-Revenue 4. PurchasesCOGS (expense) 5. Purchase DiscountsCOGS (Contra-Expense) 6. Purchase Returns & Allowances COGS (Contra-Expense) 7. Freight InCOGS (expense)

13. The Merchandising Company Updated Chart of Accounts – Assets 100-199 – Liabilities 200-299 – Capital (including Drawings) 300-399 – Revenues 400-499 – COGS Expenses 500-599 – Operating Expenses 600-699

14. Homework Page 311-312 – 11a, 13