CHAPTER

ACCOUNTING FOR
INVENTORIES
 INVENTORY SYSTEMS
1. Periodic – calls for the physical counting of goods on
hand at the end of the accounting period to determine
quantities, which are then multiplied by the
corresponding unit costs to get the inventory value for
balance sheet purposes. Cost of goods sold is calculated
only at the end of the accounting period.
– generally used when the individual inventory
items turn over rapidly and have small peso investment
such that it may prove impractical or inconvenient to
record inventory inflow and outflow.
 INVENTORY SYSTEMS
2. Perpetual – requires the maintenance of
records called stock cards that usually offer a
running summary of inventory inflow and outflow.
Cost of goods sold is calculated at the time of each
sale. (A physical count of the units on hand
should be made at least once a year or a
frequent intervals to confirm the balances
appearing on the stock cards.)
– commonly used where the individual
inventory items involve relatively large peso
amount.
June 3 - Purchased merchandise on account,
P600,000.
Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 3 Purchases 600,000
Accounts Payable 600,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 3 Merchandise Inventory 600,000
Accounts Payable 600,000
June 3 – Paid freight on the purchase, P5,000.

Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 3 Freight In 5,000
Cash 5,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 3 Merchandise Inventory 5,000
Cash 5,000
June 4 – Returned to supplier merchandise
purchased on June 3, P60,000.
Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 4 Accounts Payable 60,000
Purchase Returns and Allowances 60,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 4 Accounts Payable 60,000
Merchandise Inventory 60,000
June 5 – Sold merchandise on account, P800,000, at 40% gross profit.

Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 5 Accounts Receivable 800,000
Sales 800,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 5 Accounts Receivable 800,000
Sales 800,000

Cost of Goods Sold 480,000

Merchandise Inventory 480,000
June 7 – Merchandise sold on June 5 returned by customer, P50,000.

Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 7 Sales Returns and Allowances 50,000
Accounts Receivable 50,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 7 Sales Returns and Allowances 50,000
Accounts Receivable 50,000

Merchandise Inventory 30,000

Cost of Goods Sold 30,000
June 30 – Merchandise on hand per physical count amounts to P95,000.

Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 30 Merchandise Inventory - End 95,000
Income Summary 95,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit

No entry is made under the perpetual system because the balance

of the Merchandise Inventory account represents the ending
inventory.
Perpetual:
Merchandise Inventory
600,000 60,000
5,000 480,000
30,000
95,000

Merchandise Inventory account balance is the

same as per physical count. Hence, no
adjusting entry is needed.
June 30 – Assume that merchandise inventory on hand per physical
count amounts to P90,000, instead of P95,000.

Periodic:
General Journal J1
Date Particulars Ref. Debit Credit
June 30 Merchandise Inventory - End 90,000
Income Summary 90,000

Perpetual:
General Journal J1
Date Particulars Ref. Debit Credit
June 30 Cost of Goods Sold (o r Invento ry Sho rtage) 5,000
Merchandise Inventory 5,000
Cost of Goods Sold is used when the inventory shortage is the
result of normal shrinkage and breakage. However, abnormal and
material shortage shall be separately classified (in this case
“Inventory Shortage”) and shown as Other Expense.