Cost of Goods Sold and Inventory

The Ammar Wholesale Beverage Company purchases soft drinks from producers and then sells them to
retailers. The company began 2021 with merchandise inventory of Rs.120,000 on hand. During 2021,
additional merchandise is purchased on account at a cost of Rs.600,000. Ammar’s suppliers offer credit
terms of 2/10, n/30. All purchases are made f.o.b. shipping point. Freight charges paid by Ammar totaled
Rs.16,000. Merchandise with a net of discount cost of Rs.20,000 was returned to suppliers for credit.
Sales for the year, all on account, totalled Rs.830,000. All discounts were taken when payment to
supplier was made. The cost of the soft drinks sold is Rs.550,000. Rs.154,000 of inventory remained on
hand at the end of 2021.
 Perpetual System (Rs. in 000s) Periodic System

Purchases

Inventory (Rs.600 x 98%) 588 Purchases (Rs.600 x 98%) 588

Accounts payable 588 Accounts payable 588

Freight

Inventory 16 Freight-in 16
Cash 16 Cash 16

Returns

Accounts payable 20 Accounts payable 20

Inventory 20 Purchase returns 20

Sales

Accounts receivable 830 Accounts receivable 830

Sales revenue 830 Sales revenue 830

Cost of goods sold 550 No entry

Inventory 550

End of period

No entry Cost of goods sold (below) 550 <-----------

Inventory (ending) 154 |
Purchase returns 20 |
Inventory (beginning) 120 |
Purchases 588 |
Freight-in 16 |
*

Supporting schedule:|

Cost of goods sold: |

Beginning inventory Rs.120 |

Purchases Rs.588 |

Less: Returns (20) |

Plus: Freight-in 16 |

Net purchases 584 |

Cost of goods available 704 |

Less: Ending inventory (154) |

Cost of goods sold Rs.550 <---