Part 1

Perpetual Inventory System Periodic Inventory System

Date Account Debit Credit Account Debit Credit
Aug-01 Inventory 8,000 Purchases 8,000
Accounts 8,000 8,000
Payable

Aug-02 Inventory 200 Freight In 200

Cash 200 Cash 200

Aug-05 Accounts 500 Accounts payable 500

payable
Inventory 500 Purchases return 500

Aug-07 Sales 8,000 Sales 8,000

Accounts 8,000 Accounts 8,000
receivable receivable

Cost of 5,000 Cost of sales 5,000

sales
Inventory 5,000 Purchases 5,000

Aug-08 Accounts 7,500 Accounts payable 7,500

payable
Inventory 150 Purchase discount 150
Cash 7,350 Cash 7,350
(This is computed as 8000 less the 500 returns less the 2% discount on the 7500
remaining payable)

Aug-10 Inventory 7,000 Purchases 7,000

Accounts 7,000 Accounts payable 7,000
payable

Aug-11 Sales 200 Sales 200

Accounts 200 Accounts 200
receivable receivable

Inventory 125 Purchases 200

Cost of 125 Cost of sales 200
sales

Aug-12 Sales 4,000 Sales 4,000

Accounts 4,000 Accounts 4,000
receivable receivable
 Cost of 2,500 Cost of sales 2,500
sales
Inventory 2,500 Purchases 2,500

Aug-14 Cash 7,566 Cash 7,566

Sales 234 Sales discount 234
discount
Accounts 7,800 Accounts 7,800
receivable receivable
(7800 is computed as 8000 sold goods less the 200 returned. The discount is the
3% of the 7800)

Aug-25 Accounts 7,000 Accounts payable 7,000

payable

Cash 7,000 Cash 7,000

Aug-28 Cash 4,000 Cash 4,000

Accounts 4,000 Accounts 4,000
receivable receivable

Note: that the Aug 11 journal entry does not show the cost of the merchandise, so I assume that
the 200 is the sales price and the cost is 125. What I did is I computed for the cost in aug 11
journal entry where the 5000 goods has a sales price of 8000 or 160% of cost. Please confirm
with your professor of the cost of goods returned in Aug 11 and then correct the amount in the
entry, if this is not how it works. Thank you
Also, take note that the 2/10, n/30 term means that you will get a 2% purchase discount if you
pay within 10 days and if not, the payment is due in 30 days. So, from the time you purchased or
sold goods, count the days to determine if you have a purchase discount or a sales discount.
Note also that the difference of the journal entries below is that perpetual uses inventory account
for all purchase and return transactions to maintain the inventory record updated real time as
opposed to periodic where we record the purchases and compute for the ending inventory at
year-end.
Under what circumstances the perpetual and periodic inventory systems would be used?
Perpetual inventory is used for high value inventory but less transactions while periodic is used
for low value, high number of transaction.
Perpetual is used for high value inventory but less transactions since there are less transactions it
is easier and more convenient to maintain the inventory record updated all the time. Periodic
method is used for low value, high number of transaction since it would be hard to track the
inventory and update it all the time if there are numerous transactions
 
Which type of companies would normally use perpetual and periodic inventory system? 
Car dealers (high value inventory) would use perpetual since there are just a few sales and
purchases everyday (few transactions) while grocery stores (low value) will use periodic
inventory system since there are a lot of transactions everyday (high transactions).

Part 2

Part A

Date Transaction Units Price Cost= Price×

units
01 June Beginning 15 4.5 67.50
inventory
05 June Purchase 15 4 60.00
15 June Purchase 40 3.5 70.00
20 June Purchase 45 3 135.00
Total 95 332.50
Total goods available for sale= 95 units and 332.50 riyal

Part B

Date Transaction Units Price Sales= Price×

units
10 June Sale 25 10 250
25 June Sale 60 10 600
Total 85 850
Total sale 85 units and 850 riyal

Part C

Ending inventory in units= units available for sale- units sold

Ending inventory in units= 95-85

Ending inventory in units= 10

Part D

FIFO Purchases CGS (Sales) Ending inventory

Date Transaction Qty Rate Amoun Qty Rate Amount Qty Rate Amount
 t
01 Beginning 15 4.50 67.50
june inventory

05 Purchase 15 4 60 15 4.50 67.50

june
15 4 60

10 Sale 15 4.50 67.50 0 4.50 -

june
10 4.00 40 5 4.00 20

15 Purchase 20 3.5 70 5 4 20
June
20 3.50 70

20 Purchase 45 3 70 5 4 20
june
20 3.50 70
45 3 135

25 Sale 5 4 20 0 4 -
June
20 3.5 70 0 3.50 -
35 3 105 10 3 30

COGS 302.50 Ending 30

inventory
LIFO Purchases CGS (Sales) Ending inventory
Date Transaction Qty Rate Amoun Qty Rate Amount Qty Rate Amount
t
01 Beginning 15 4.50 67.50
june inventory

05 Purchase 15 4 60 15 4.50 67.50

june
15 4 60

10 Sale 15 4 60 5 4.50 22.50

june
 10 4.50 45 0 4.00 -

15 Purchase 20 3.5 70 5 4.50 22.5

June
20 3.50 70

20 Purchase 45 3 135 5 4.50 22.50

june
20 3.50 70
45 3 135

25 Sale 45 3 135 5 4.50 22.50

June
15 3.5 52.50 5 3.50 17.50
0 3.0 0

COGS 292.50 Ending 40

inventory

Average Purchases CGS (Sales) Ending inventory

Date Transaction Qty Rate Amoun Qty Rate Amount Qty Rate Amount
t
01 Beginning 15 4.50 67.50
june inventory

05 Purchase 15 4 60 30 4.25 127.50

june

10 Sale 25 4.25 106.25 5 4.25 21.25

june

15 Purchase 20 3.5 70 25 3.65 91.25

June

20 Purchase 45 3 135 70 3.23 226.25

 june

25 Sale 60 3.23 193.93 10 3.23 32.32

June
COGS 300.18 Ending 32.32
inventory

Cost of Goods sold (In Riyals)

i. First in First Out (FIFO)  302.50 
ii. Last in First Out (LIFO)  292.50 
iii. Average Method    300.18 
 
Ending Inventory cost (in Riyals)
i. First in First Out (FIFO)  30.00 
ii. Last in First Out (LIFO)  40.00
iii. Average Method    32.32
FIFO LIFO Avg.
Sales value 850 850 850
Less: CGS (302.50) (292.50) (300.18)
Gross Profit 547.50 557.50 549.82

g.) When is the specific identification method used? What types of companies might use it?
When there the quantity of the Inventory is very low then specific Inventory method might be
used.
Because specific inventory method gives us exact profit.
The smaller companies might use specific inventory method or Companies like Airbus,
Boeing(aircraft manufacturers) or ship-builders
might also use the specific inventory method because they can easily trace their inventory
(aircrafts, airplanes) easily. 
h)
i. The cost flow method with the lowest net income is   FIFO 
ii. The cost flow method with the highest net income is    LIFO 
iii. The cost flow method with the Lowest ending inventory is     FIFO 
iv. The cost flow method with the Highest ending inventory is     LIFO 
 
Part 3

Sales Journal
Date Customer Dr. Account Dr. Cost of goods
receivables sold

Cr. Sales Cr. Inventory

Jan 08 Ali Company 4,000 2,000
Jan 10 Ali Company -500 250
Total 3,500 2,250

Purchase Journal

Date Vendor Dr. Merchandise inventory

Cr. Accounts payable

Jan 02 RST trading 8,000
Jan 11 RST trading (Purchase return) -400
Total 7,600
L
Cash receipt journal

Date Account Dr. Dr. Cr. Cr. Sales Dr. Cost of goods
Cash Sales Account sold
discoun receivables
t
Cr. Merchandise
inventory
Jan Cash 6,000 6,000 3,000
05 Sales
Jan Ali 3,395 105 3,500
18 company
Total 9,395 105 3,500 6,000 3,000
Account receivables 4,000
Less: Sales returns 500
Discount on sales to Ali 3%

Cash disbursement journal

Date Account Dr. Dr. Cr. Cr. Cash

Account Other Merchandise
payable inventory
Discount
Jan 01 TRQ 5,000 5,000
Company
Jan 15 RST 7,600 152 7,448
company
Jan 30 Utility bill 300 300

Jan 30 Salaries and 1,000 1,000

wages
Total 7,600 6,300 152 13,748

RST Purchase 8,000

Less: Purchase return 400

Net amount 7,600

Discount on sales to Ali 2%

General Journal
Date Account Debit Credit
Jan 01 Merchandise 5,000
inventory
Cash 5,000

Jan 02 Merchandise 8,000

 inventory
Accounts payable 8,000

Jan 05 Cash 6,000

Merchandise 6,000
inventory

Jan 08 Accounts receivables 4,000

Merchandise 4,000
inventory

Jan 08 Cost of goods sold 2,000

Merchandise 2,000
inventory

Jan 10 Merchandise 500

inventory
Account receivables 500

Jan 11 Accounts payable 400

Merchandise 400
inventory

Jan 15 Accounts payable 7,600

Discount received 152
Cash 7,448

Jan 18 Cash 3,605

Discount allowed 105
Account receivables 3,500

Jan 25 Building 40,000

Notes payable 40,000

Jan 30 Salaries and wages 300

Utilities expense 1,000
Cash 1,300