February 1, 2019: Accounts payable P 200,000 Inventories To record the return of the inventories purchased. May 1, 2019: Cash P 300,000 Sales To record the sale of inventories to customers for cash. Cost of sales/Cost of goods sold P 200,000 Inventories To record the cost of inventories sold for cash. May 31, 2019: Sales returns P 60,000 Cash To record the return of the inventories sold for cash. Inventories P 40,000 Cost of sales/Cost of goods sald To record the reduction of the amount of cost of goods sold. August 1, 2019: Accounts receivable P 250,000 Sales To record the sale of inventories on credit basis. Cost af sales/Cost of goods sold P 150,000 Inventories To record the cost of inventories sold on credit basis, September 1, 2019: ‘Sales returns P 45,000 Accounts receivable To recard the return of the inventories sold on credit basis. Inventories P 30,000 Cost of sales/Cost of goods sold To record the reduction of the amount of cost of goods sold. December 31, 2019: -No journal entry- 7 7 = 7 200,000 300,000 200,000 60,000 40,000 250,000 150,000 45,000 30,000Cost of sales/Cost of goods sold 00 Inventories 00% 5. To record the return from customers of the inventories sold and the reduction of the amount of cost of goods sold. Sales returns 008 Cash or Accounts receivable sox Inventories og Cost of sales /Cost of goods sold soe 6. To record the adjustment for remaining inventories as ending inventories. -No journal entry- ‘Sample Problem-solving 4: HIGH SPEED Company had the following transactions related to inventories during the current year 2019: January 1; Purchases P4,000,000 worth of inventories from suppliers, Half of which were paid in cash and the other half on credit basis. The company. paid P10,000 for freight costs. February1 A P200,000 worth of inventories were returned to suppliers due to defects. It was charged against the company's account and a credit memo from supplier were received later that day. May 1 + Sold to customers inventories costing P200,000 for P300,000 for cash. May 31 : Received inventories from customers due to defects amounting to 60,000, with a cost of P40,000. Cash paid were returned that day. August —_: Sold to customers inventories costing P150,000 for P250,000 on credit. September 1; Received inventories from customers due to defects amounting to P45,000, with a cost of P30,000. Credit memos were sent to customers that day. December 31; Based on records and physical count, the inventories remained unsold for the year amounted to P530,000. Requirement: Prepare the required journal entries to record the transactions using the perpetual inventory system. Solution: January 1, 2019; Inventories 1,000,000 Cash P 500,000 Accounts payable 500,000 To record the purchase of inventories from the supplier. Inventories P 10,000 Cash P 10,000 To record the payment of freight cast incurred,‘August 1, 2019: Accounts receivable P 250,000 Sales P 250,000 To record the sale of inventories on credit basis. September 1, 2019: Sales returns P 45,000 Accounts receivable P 45,000 To record the return of the inventories sold on credit basis. December 31, 2019: Inventories P 530,000 Income and expense summary P 530,000 To record the adjustment for ending inventories. 2.22, Perpetual Inventory System ‘This system of accounting for inventories involves strict tracking of the inflow and outflow of the cost of inventories through the use of a stock card. Under this system, all transactions pertaining to inventories are accounted for and journalized as charged to inventory account. Basically, some special journals particularly purchase journal are not involved in this system, In addition to this, what also make the perpetual inventory system different from periodic inventory system is that when recording sale of inventories since a cost of sale is set up of the cost of goods sold to customers. Lastly, there is no need of setting up an adjusting journal entry for the ending inventories since the cost of the ending inventories can be determined by strictly tracking the debits and credits of the inventory account, or in effect, through the use of the stock card. Therefore, physical count may not be necessary but is highly encouraged to allow matching of recorded cast andl actual cost. Summary Journal Entries under Perpetual Inventory System: 1. To record the purchase of inventories trom suppliers. Inventories XXX Cash or Accounts payable wx 2. Torecord the payment of freight cost incurred on the purchase. Inventories. Xxx Cash coed 3. To record the return to suppliers of the inventories purchased. Cash or Accounts payable sox Inventories xxx 4. To record the sale of inventories to customers and the related cost of the inventories sold. Cash or Accounts receivable XxX Sales xxx‘Sample Problem-solving 3: HIGH SPEED Company had the following transactions related to inventories during the current year 2019; January 1 i Purchases P1,000,000 warth of inventories from suppliers, Half of which were paid in cash and the other half on credit basis. The company paid P10,000 for freight costs. February1 —: A P200,000 worth of inventories were returned to suppliers due to defects. It was charged against the company's accaunt and a credit memo from supplier were received later that day. May 1 + Sold to customers inventories costing P200,000 for P300,000 for cash. May 31 Received inventories from customers due to defects amounting to P60,000, with a cost of P40,000. Cash paid were returned that day. August 1 Sold to customers inventories costing P150,000 for P250,000 on credi September 1; Received inventories from customers due to defects amounting to 45,000, with a cost of P30,000. Credit memos were sent to customers that day, December 31: Based on records and physical count, the inventories remained unsold for the year amounted to P530,000. Requirement: Prepare the required journal entries to record the transactions using the periodic inventory system. Solution: January 1, 2019: Purchases Cash 1,000,000 P. 500,000 Accounts payable 500,000 To record the purchase of inventories from the supplier. Freight-in Cash P 10,000 P 10,000 To record the payment of freight cost incurred. February 1, 2019: Accounts payable P 200,000 Purchase returns P 200,000 To record the return of the inventories purchased. May 1, 2019: Cash Sales P 300,000 P. 300,000 To record the sale of inventories to customers for cash. May 31, 2019: Sales returns Cash P 60,000 P 60,000 To record the return of the inventories sotd for cash.2.2.lnventory Accounting Systems Companies usually employ accounting systems for inventories and the systems are applied from the moment of purchase of the inventories up to the final consumption, or further resale of those inventories. ‘There are two accounting systems for inventories, namely: 1. periodic inventory system; and 2. perpetual inventary system. ‘These two inventory accounting systems are acceptable in actual practice. However, for problem-solving purposes, if the problem is silent, periodic inventory system is more ‘assumed. 3.2.1. Periodic Inventory System ‘This system is the one usually followed when handling and accounting for the transactions involving inventories. Under this system, all transactions pertaining to inventories are accounted for and journalized based on the nature of the transaction. Basically, special journals, such as purchase journal and sales journal, are involved in this system. This system is presumed and assumed, ifand when the problem to be solved is silent. However, since there is no tracking of the cost of inventories due to the involved journal entries, a physical count is being conducted every end of the reporting period to establish the amount of remaining inventories. ‘Summary Journal Entries under Periodic Inventory System: 1, Torecord the purchase of inventories from suppliers. Purchases Boed Cash or Accounts payable xo 2. Torecord the payment of freight cost incurred on the purchase. Freight-in XXX Cash so 3. Torecord the return to suppliers of the inventories purchased. Cash or Accounts payable wx Purchase returns sox 4. Torecord the sale of inventories to customers. Cash or Accounts receivable sox Sales v0 5. Torecord the return from customers of the inventories sold. Sales returns vox, Cash or Accounts receivable 000 6 Torecord the adjustment for remaining inventories as ending inventories. Inventories 1x Income and expense summary ox