Periodic and Perpetual Inventory System Compared 5.

Paid freight for the P6,000 purchase; terms were FOB

Shipping point
When the periodic inventory method is used, all Periodic Inventory System
purchases of merchandise are debited to the purchases Freight in 200
accounts. The purchase account, a temporary account, is Cash 200
used only for merchandise purchased for resale.
Perpetual Inventory System
Under the perpetual inventory system, the inventory Inventory 200
account is increased by purchases, transportation in and Cash 200
sales returns and is decreased by the cost of sales,
purchases returns and allowance and purchase discounts. 6. Returned merchandise costing P300 (part of the
P6,000 purchase)
1. Sold merchandise on account costing P8,000 for Periodic Inventory System
P10,000; terms were 2/10, n/30; Accounts payable 300
Periodic Inventory System Purchase returns and allowance 300
Accounts Receivable 10,000
Sales 10,000 Perpetual Inventory System
Accounts payable 300
Perpetual Inventory System Inventory 300
Accounts Receivable 10,000
Sales 10,000 7. Paid merchandise purchased, refer to no. 4
Periodic Inventory System
Cost of Goods Sold 8,000 Accounts payable 5,700
Inventory 8,000 Purchase discounts 114
Cash 5,586
2. Customer returned merchandise costing P400 that had
been sold on account for P500 (part of the P10,000 sale) Perpetual Inventory System
Periodic Inventory System Accounts payable 5,700
Sales returns and allowances 500 Inventory 114
Accounts receivable 500 Cash 5,586

Perpetual Inventory System 8. To transfer the beginning inventory balance,

Sales returns and allowances 500 P250,000, to the Income Summary account.
Accounts receivable 500 Periodic Inventory System
Income summary 250,000
Inventory 400 Inventory 250,000
Cost of Goods Sold 400
Perpetual Inventory System
3. Received payment from customer for merchandise - No entry
sold above.
Periodic Inventory System and Perpetual Inventory 9. To record the ending inventory balance, P231,500.
System Periodic Inventory System
Cash 9,310 Inventory 231,500
Sales discounts 190 Income summary 231,500
Accounts receivable 9,500
4. Purchased on account merchandise for resale for Perpetual Inventory System
P6,000; terms were 2/10, n/30. - No entry
Periodic Inventory System
Purchases 6,000 10. To adjust the ending perpetual inventory balance for
Accounts payable 6,000 the shrinkage during the year.
Periodic Inventory System
Perpetual Inventory System - No entry
Inventory 6,000
Accounts payable 6,000 Perpetual Inventory System
Cost of Goods Sold 360
Inventory 360
Accounting for Value Added Tax (VAT) for
Merchandising Business

Business enterprises subject to business taxes are

required to pay taxes due to the Bureau of Internal
Revenue (BIR) according to the National Internal
Revenue Code (NIRC).
Section 106 of the NIRC states that “there shall be
levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax
equivalent to 12% of the gross selling price or gross
value in money of the goods or properties sold, bartered
or exchanged, such tax to be paid by the seller or
transferor.

The term “gross selling price” means total amount of

money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale,
barter or exchange of goods or properties, excluding the
value-added tax.

In sales transaction, a 12% output tax is levied on

customers and added to the selling price. In purchase
transaction, a 12% input tax is being paid to supplier in
addition to the purchase price. We call the sum of selling
price and output tax as the invoice price; likewise, the
invoice price is also the sum of the purchase price and
the input tax.