MODULE 12 Flashcards
What is the Perpetual Inventory System?
✅ The Perpetual Inventory System is a system where the inventory account is updated immediately as each sale is made, maintaining a running balance of goods on hand.
How does the journal entry for a sale of merchandise for cash look?
✅ If merchandise is sold for P25,000 (with a cost of P21,000), the entries are:
Record the sale:
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Cash 25,000
Sales 25,000
(To record sale of merchandise for cash)Record the cost of merchandise sold:
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Cost of Goods Sold 21,000
Merchandise Inventory 21,000
(To record cost of merchandise sold)
How does selling merchandise on account differ from selling for cash?
✅ The main difference is that instead of cash, the sale is recorded under Accounts Receivable:
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Accounts Receivable 25,000
Sales 25,000
(To record sale of merchandise on account)
Cost of Goods Sold 21,000
Merchandise Inventory 21,000
(To record cost of merchandise sold)
What happens when customers return merchandise?
✅ When merchandise is returned, the business records a Sales Returns & Allowances entry and restores inventory:
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Sales Returns & Allowances 760
Accounts Receivable (or Cash) 760
(To record return or allowance on unsatisfactory merchandise)
Merchandise Inventory 760
Cost of Goods Sold 760
(To restore returned goods to inventory)
How do sales discounts work in the Perpetual Inventory System?
✅ If a customer pays within the discount period, the business applies a Sales Discount:
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Cash 2,940
Sales Discounts 60
Accounts Receivable 3,000
(To record collections with 2% discount)
✅ If the customer pays beyond the discount period, the full amount is collected without discount:
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Cash 3,000
Accounts Receivable 3,000
(To record collection without discount)
What is the journal entry for freight-out expenses?
✅ When the company pays for transportation (freight-out) of sold merchandise, the entry is:
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Freight-Out 500
Cash 500
(To record payment of freight for merchandise sold)
What are the key differences between Perpetual and Periodic Inventory Systems?
✅ Perpetual Inventory System:
Inventory is updated after every transaction
Cost of Goods Sold (COGS) is recorded at the time of sale
No physical count is required to determine inventory balance
✅ Periodic Inventory System:
Inventory is updated only at the end of the period
COGS is calculated at the end of the period
A physical inventory count is required
