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appendix C
Periodic Inventory Systems for
Merchandising Businesses
In this text, we emphasize the perpetual inventory system of accounting for purchases and sales of merchandise. Not all merchandise businesses, however, use perpetual inventory systems. For example, some managers/owners of small merchandise
businesses, such as locally owned hardware stores, may feel more comfortable using manually kept records. Because a manual perpetual inventory system is timeconsuming and costly to maintain, the periodic inventory system is often used in
these cases.
Merchandise Transactions in a
Periodic Inventory System
In a periodic inventory system, the revenues from sales are recorded when sales are
made in the same manner as in a perpetual inventory system. However, no attempt
is made on the date of sale to record the cost of the merchandise sold. Instead, the
merchandise inventory on hand at the end of the period is counted. This physical
inventory is then used to determine (1) the cost of merchandise sold during the period and (2) the cost of merchandise on hand at the end of the period.
In a periodic inventory system, purchases of inventory are recorded in a purchases account rather than in a merchandise inventory account. No attempt is made
to keep a detailed record of the amount of inventory on hand at any given time.
The purchases account is normally debited for the amount of the invoice before
considering any purchases discounts. Purchases discounts are normally recorded in
a separate purchases discounts account.1 The balance of this account is reported
as a deduction from the amount initially recorded in Purchases for the period. Thus,
the purchases discounts account is viewed as a contra (or offsetting) account to
Purchases.
Purchases returns and allowances are recorded in a similar manner as purchases
discounts. A separate account is used to keep a record of the amount of purchases
returns and allowances during a period. Purchases returns and allowances are reported as a deduction from the amount initially recorded as Purchases. Like Purchases Discounts, the purchases returns and allowances account is a contra (or
offsetting) account to Purchases.
When merchandise is purchased FOB shipping point, the buyer is responsible for
paying the freight charges. In a periodic inventory system, freight charges paid when
purchasing merchandise FOB shipping point are debited to Transportation In, Freight
In, or a similarly titled account.
To illustrate the recording of merchandise transactions in a periodic system, we
will use the following selected transactions for Taylor Co. We will also explain how
the transaction would have been recorded under a perpetual system.
June 5.
Purchased $30,000 of merchandise on account from Owen Clothing,
terms 2/10, n/30.
Purchases
Accounts Payable—Owen Clothing
30,000
30,000
Under the perpetual inventory system, such purchases would be recorded in the merchandise inventory account at their cost, $30,000.
1Some
businesses prefer to credit the purchases account. If this alternative is used, the balance of the purchases account will be a net amount—the total purchases less the total purchases discounts for the period.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
June 8.
Returned merchandise purchased on account from Owen Clothing on
June 5, $500.
Accounts Payable—Owen Clothing
Purchases Returns and Allowances
500
500
Under the perpetual inventory system, returns would be recorded as a credit to the
merchandise inventory account at their cost of $500.
June 15.
Paid Owen Clothing for purchase of June 5, less return of $500 and
discount of $590 [($30,000 $500) 2%].
Accounts Payable—Owen Clothing
Cash
Purchases Discounts
29,500
28,910
590
Under a perpetual inventory system, a purchases discount account is not used. Instead
the merchandise inventory account is credited for the amount of the discount, $590.
June 18.
Sold merchandise on account to Jones Co., $12,500, 1/10, n/30. The cost of
the merchandise sold was $9,000.
Accounts Receivable—Jones Co.
Sales
12,500
12,500
The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale.
June 21.
Received merchandise returned on account from Jones Co., $4,000.
The cost of the merchandise returned was $2,800.
Sales Returns and Allowances
Accounts Receivable—Jones Co.
4,000
4,000
The entry to record the sales return is the same under both systems. In addition, the
cost of the merchandise returned would be debited to the merchandise inventory account and credited to the cost of merchandise sold account under the perpetual inventory system.
June 22.
Purchased merchandise from Norcross Clothiers, $15,000, terms FOB
shipping point, 2/15, n/30, with prepaid transportation charges of
$750 added to the invoice.
Purchases
Transportation In
Accounts Payable—Norcross Clothiers
15,000
750
15,750
This entry is similar to the June 5 entry for the purchase of merchandise. Since the
transportation terms were FOB shipping point, the prepaid freight charges of $750
must be added to the invoice cost of $15,000. Under the perpetual inventory system,
the purchase is recorded in the merchandise inventory account at the cost of $15,750
(invoice price plus transportation).
June 28.
Received $8,415 as payment on account from Jones Co., less return of
June 21 and less discount of $85 [($12,500 $4,000) 1%].
Cash
Sales Discounts
Accounts Receivable—Jones Co.
8,415
85
8,500
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
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This entry is the same under the perpetual inventory system.
June 29.
Received $19,600 from cash sales. The cost of the merchandise sold
was $13,800.
Cash
Sales
19,600
19,600
The entry to record the sale is the same under both systems. Under the perpetual inventory system, the cost of merchandise sold and the reduction in merchandise inventory would also be recorded on the date of sale.
The multiple-step income statement under the periodic inventory system is illustrated in Exhibit 1. The multiple-step income statement under a perpetual inventory system is similar, except that the cost of merchandise sold is reported as
a single amount.
Chart of Accounts for a Periodic
Inventory System
Exhibit 2 is the chart of accounts for NetSolutions when a periodic inventory system is used. The periodic inventory accounts related to merchandising transactions
are shown in color.
End-of-Period Procedures in a
Periodic Inventory System
The end-of-period procedures are generally the same for the periodic and perpetual inventory systems. In the remainder of this appendix, we will discuss the differences in procedures for the two systems that affect the work sheet, the adjusting
entries, and the closing entries. As the basis for illustrations, we will use the data
for NetSolutions, presented in Chapter 6.
Work Sheet
The differences in the work sheet for a merchandising business that uses the periodic
inventory system are highlighted in the work sheet for NetSolutions in Exhibit 3. As
we illustrated earlier, accounts for purchases, purchases returns and allowances, purchases discounts, and transportation in are used in a periodic inventory system.
Under the periodic inventory system, the merchandise inventory account, throughout the accounting period, shows the inventory at the beginning of the period. The
merchandise inventory on January 1, 2007, $59,700, is a part of the merchandise
available for sale. At the end of the period, the beginning inventory amount in the
ledger is replaced with the ending inventory amount. To update the inventory account, two adjusting entries are used.2 The first adjusting entry transfers the beginning inventory balance to Income Summary. This entry, shown below, has the effect
of increasing the cost of merchandise sold and decreasing net income.
Dec. 31
2Another
Income Summary
Merchandise Inventory
59,700
59,700
method of updating the merchandise inventory account at the end of the period is called the closing method.
This method adjusts the merchandise inventory through the use of closing entries. This method may not be appropriate
for use in computerized accounting systems. Since the financial statements are the same under both methods and since
computerized accounting systems are used by most businesses, the closing method is not illustrated.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
•Exhibit 1
Multiple-Step Income Statement—Periodic Inventory System
NetSolutions
Income Statement
For the Year Ended December 31, 2007
Revenue from sales:
$720,185
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,140
Less: Sales returns and allowances . . . . . . . . . .
5,790
11,930
Sales discounts . . . . . . . . . . . . . . . . . . . . .
$708,255
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of merchandise sold:
$ 59,700
Merchandise inventory, January 1, 2007 . . . . .
$521,980
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Purchases returns and allowances . . . . . . $9,100
11,625
Purchases discounts . . . . . . . . . . . . . . . . . 2,525
$510,355
Net purchases . . . . . . . . . . . . . . . . . . . . . . . . . .
17,400
Add transportation in . . . . . . . . . . . . . . . . . . . .
$527,755
Cost of merchandise purchased . . . . . . . . . . . .
$587,455
Merchandise available for sale . . . . . . . . . . . . . . .
Less merchandise inventory,
December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .
Cost of merchandise sold . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling expenses:
Sales salaries expense . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . .
Depreciation expense—store equipment . . .
Miscellaneous selling expense . . . . . . . . . .
Total selling expenses . . . . . . . . . . . . . . .
Administrative expenses:
Office salaries expense . . . . . . . . . . . . . . . .
Rent expense . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation expense—office equipment . . .
Insurance expense . . . . . . . . . . . . . . . . . . . .
Office supplies expense . . . . . . . . . . . . . . . .
Miscellaneous administrative expense . . . .
Total administrative expenses . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . .
Other income and expense:
Rent revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,150
525,305
$182,950
$ 56,230
10,860
3,100
630
$ 70,820
$ 21,020
8,100
2,490
1,910
610
760
34,890
105,710
$ 77,240
$
600
2,440
1,840
$ 75,400
After the first adjusting entry has been recorded and posted, the balance of the
merchandise inventory account is zero. The second adjusting entry records the cost
of the merchandise on hand at the end of the period by debiting Merchandise Inventory. Since the merchandise inventory at December 31, 2007, $62,150, is subtracted from the cost of merchandise available for sale in determining the cost of
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
•Exhibit 2
Chart of Accounts—Periodic Inventory System
Balance Sheet Accounts
110
111
112
115
116
117
120
123
124
Income Statement Accounts
100 Assets
Cash
Notes Receivable
Accounts Receivable
Merchandise Inventory
Office Supplies
Prepaid Insurance
Land
Store Equipment
Accumulated Depreciation—
Store Equipment
Office Equipment
Accumulated Depreciation—
Office Equipment
410
411
412
400 Revenues
Sales
Sales Returns and Allowances
Sales Discounts
210
211
212
215
200 Liabilities
Accounts Payable
Salaries Payable
Unearned Rent
Notes Payable
523
529
530
531
532
310
311
312
300 Owner’s Equity
Chris Clark, Capital
Chris Clark, Drawing
Income Summary
533
534
539
500 Costs and Expenses
Purchases
Purchases Returns and
Allowances
Purchases Discounts
Transportation In
Sales Salaries Expense
Advertising Expense
Depreciation Expense—Store
Equipment
Transportation Out
Miscellaneous Selling Expense
Office Salaries Expense
Rent Expense
Depreciation Expense—Office
Equipment
Insurance Expense
Office Supplies Expense
Misc. Administrative Expense
610
600 Other Income
Rent Revenue
710
700 Other Expense
Interest Expense
125
126
510
511
512
513
520
521
522
merchandise sold, Income Summary is credited. This credit has the effect of decreasing the cost of merchandise available for sale during the period, $587,455, by
the cost of the unsold merchandise. The second adjusting entry is shown below.
Dec. 31
Merchandise Inventory
Income Summary
62,150
62,150
After the second adjusting entry has been recorded and posted, the balance of
the merchandise inventory account is the amount of the ending inventory. The accounts for Merchandise Inventory and Income Summary after both entries have been
posted would appear in T account form as follows:
Merchandise Inventory
2007
Jan. 1 Beginning inventory
Dec. 31 Ending inventory
59,700
62,150
Dec. 31 Beginning inventory
59,700
Income Summary
Dec. 31 Beginning inventory
59,700
Dec. 31 Ending inventory
62,150
No separate adjusting entry can be made for merchandise inventory shrinkage
in a periodic inventory system. This is because no perpetual inventory records are
available to show what inventory should be on hand at the end of the period.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
•Exhibit 3
Work Sheet—Periodic Inventory System
NetSolutions
Work Sheet
For the Year Ended December 31, 2007
Account Title
Trial Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Dr.
Dr.
Dr.
Dr.
Cash
52,950
Accounts Receivable
91,080
Merchandise Inventory
59,700
Cr.
Cr.
(b) 62,150 (a)59,700
Cr.
Cr.
Dr.
52,950
52,950
91,080
91,080
62,150
62,150
Office Supplies
1,090
(c)
610
480
480
Prepaid Insurance
4,560
(d) 1,910
2,650
2,650
20,000
Land
20,000
20,000
Store Equipment
27,100
27,100
2,600
Accum. Depr.—Store Equipment
Office Equipment
2,230
(f) 2,490
Salaries Payable
(g) 1,140
2,400 (h)
Unearned Rent
153,800
Chris Clark, Capital
Chris Clark, Drawing
600
25,000
Notes Payable (final payment, 2017)
4,720
4,720
22,420
22,420
1,140
1,140
1,800
1,800
25,000
25,000
153,800
153,800
18,000
18,000
18,000
(a)59,700
Income Summary
(b)62,150
59,700
720,185
Sales
5,700
15,570
15,570
22,420
Accounts Payable
62,150
59,700
6,140
6,140
Sales Discounts
5,790
5,790
5,790
521,980
521,980
521,980
6,140
Purchases Returns & Allowances
9,100
9,100
Purchases Discounts
2,525
2,525
Transportation In
17,400
Sales Salaries Expense
55,450
Advertising Expense
10,860
(g)
(e) 3,100
Depr. Expense—Store Equipment
630
Miscellaneous Selling Expense
Office Salaries Expense
780
(g)
20,660
360
8,100
9,100
2,525
17,400
17,400
60,030
60,030
10,860
10,860
3,100
3,100
630
630
21,020
21,020
8,100
8,100
Depr. Expense—Office Equipment
(f) 2,490
2,490
2,490
Insurance Expense
(d) 1,910
1,910
1,910
Office Supplies Expense
(c)
610
610
Rent Expense
610
760
Misc. Administrative Expense
(h)
2,440
Interest Expense
940,260
760
760
Rent Revenue
2,440
940,260
131,700
600
600
600
131,700 1,009,140 1,009,140
2,440
719,160
794,560
289,980
214,580
794,560
289,980
289,980
75,400
75,400
Net Income
794,560
Beginning merchandise inventory, $59,700.
Ending merchandise inventory, $62,150.
Office supplies used, $610 ($1,090 $480).
Insurance expired, $1,910.
Depreciation of store equipment, $3,100.
62,150
720,185
720,185
Sales Returns and Allowances
Purchases
(f) Depreciation of office equipment, $2,490.
(g) Salaries accrued but not paid (sales salaries,
$780; office salaries, $360), $1,140.
(h) Rent earned from amount received in
advance, $600.
Cr.
27,100
5,700
(e) 3,100
15,570
Accum. Depr.—Office Equipment
(a)
(b)
(c)
(d)
(e)
Balance
Sheet
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
C-7
One disadvantage of the periodic inventory system is that inventory shrinkage cannot be measured.3
Completing the Work Sheet
After all of the necessary adjustments have been entered on the work sheet, the
work sheet is completed in the normal manner. An exception to the usual practice
of extending only account balances is Income Summary. Both the debit and credit
amounts for Income Summary are extended to the Adjusted Trial Balance columns.
Extending both amounts aids in the preparation of the income statement because
the debit adjustment (the beginning inventory of $59,700) and the credit adjustment
(the ending inventory of $62,150) are reported as part of the cost of merchandise
sold.
The purchases, purchases discounts, purchases returns and allowances, and transportation in accounts are extended to the Income Statement Columns of the work
sheet, since they are used in computing the cost of merchandise sold. You should
note that the two merchandise inventory amounts in Income Summary are extended
to the Income Statement columns. After all of the items have been extended to the
statement columns, the four columns are totaled and the net income or net loss is
determined.
Financial Statements
The financial statements for NetSolutions are essentially the same under both the
perpetual and periodic inventory systems. The main difference is that the cost of
goods is reported as a single amount under the perpetual system. Exhibit 1 illustrates the manner in which cost of merchandise sold is reported in a multiple-step
income statement when the periodic inventory system is used.4
Adjusting and Closing Entries
The adjusting entries are the same under both inventory systems, except for merchandise inventory. As indicated previously, two adjusting entries for beginning and
ending merchandise inventory are necessary in a periodic inventory system.
The closing entries differ in the periodic inventory system in that there is no cost
of merchandise sold account to be closed to Income Summary. Instead, the purchases, purchases discounts, purchases returns and allowances, and transportation
in accounts are closed to Income Summary.5 To illustrate, the adjusting and closing
entries under a periodic inventory system for NetSolutions are shown at the top of
the following pages.
3Any
inventory shrinkage that does exist is part of the cost of merchandise sold and is reported on the income statement, since a smaller ending inventory is deducted from other merchandise available for sale.
4The single-step income statement would be the same for both the perpetual and the periodic inventory systems.
5The balance of Income Summary, after the merchandise inventory adjustments and the first two closing entries have
been posted, is the net income or net loss for the period.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
JOURNAL
Date
Post.
Ref.
Debit
Adjusting Entries
1
2
Description
Page 16
2007
Dec. 31
3
1
Income Summary
Merchandise Inventory
312
115
59 7 0 0 00
Merchandise Inventory
Income Summary
115
312
62 1 5 0 00
Office Supplies Expense
Office Supplies
534
116
6 1 0 00
Insurance Expense
Prepaid Insurance
533
117
1 9 1 0 00
Depreciation Expense––Store Equip.
Accumulated Depr.––Store Equip.
522
124
3 1 0 0 00
Depreciation Expense––Office Equip.
Accumulated Depr.––Office Equip.
532
126
2 4 9 0 00
Sales Salaries Expense
Office Salaries Expense
Salaries Payable
520
530
211
7 8 0 00
3 6 0 00
Unearned Rent
Rent Revenue
212
610
6 0 0 00
4
31
6
7
31
9
10
31
12
13
31
15
16
31
18
19
31
21
22
25
20
21
1 1 4 0 00 22
23
23
24
17
2 4 9 0 00 18
19
20
14
3 1 0 0 00 15
16
17
11
1 9 1 0 00 12
13
14
8
6 1 0 00 9
10
11
5
62 1 5 0 00 6
7
8
2
59 7 0 0 00 3
4
5
Credit
31
24
6 0 0 00 25
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
JOURNAL
Date
Page 17
Post.
Ref.
Debit
Credit
Closing Entries
1
2
Description
2007
Dec. 31
3
4
5
6
1
Sales
Purchases Returns and Allowances
Purchases Discounts
Rent Revenue
Income Summary
410
511
512
610
312
720 1 8 5 00
9 1 0 0 00
2 5 2 5 00
6 0 0 00
Income Summary
Sales Returns and Allowances
Sales Discounts
Purchases
Transportation In
Sales Salaries Expense
Advertising Expense
Depreciation Exp.––Store Equip.
Miscellaneous Selling Expense
Office Salaries Expense
Rent Expense
Depreciation Exp.––Office Equip.
Insurance Expense
Office Supplies Expense
Miscellaneous Administrative Exp.
Interest Expense
312
411
412
510
513
520
521
522
529
659 4 6 0 00
Income Summary
Chris Clark, Capital
312
310
75 4 0 0 00
Chris Clark, Capital
Chris Clark, Drawing
310
311
18 0 0 0 00
2
3
4
5
732 4 1 0 00 6
7
7
8
31
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
530
531
532
533
534
539
710
11
12
13
14
15
16
17
18
19
20
21
22
23
25
75 4 0 0 00 26
27
27
29
9
10
24
31
26
28
8
6 1 4 0 00
5 7 9 0 00
521 9 8 0 00
17 4 0 0 00
56 2 3 0 00
10 8 6 0 00
3 1 0 0 00
6 3 0 00
21 0 2 0 00
8 1 0 0 00
2 4 9 0 00
1 9 1 0 00
6 1 0 00
7 6 0 00
2 4 4 0 00
24
25
C-9
31
28
18 0 0 0 00 29
E xercises
EXERCISE C-1
Purchases-related
transactions—periodic
inventory system
EXERCISE C-2
Sales-related transactions—
periodic inventory system
Journalize entries for the following related transactions, assuming that Mountain
Gallery, Inc. uses the periodic inventory system.
a. Purchased $12,000 of merchandise from Yellowstone Co. on account, terms 2/10,
n/30.
b. Discovered that some of the merchandise was defective and returned items with
an invoice price of $2,500, receiving credit.
c. Paid the amount owed on the invoice within the discount period.
d. Purchased $9,000 of merchandise from Glacier, Inc. on account, terms 1/10, n/30.
e. Paid the amount owed on the invoice within the discount period.
Journalize entries for the following related transactions, assuming that Aveda Company uses the periodic inventory system.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
July 6 Sold merchandise to a customer for $18,500, terms FOB shipping point,
2/10, n/30.
6 Paid the transportation charges of $420, debiting the amount to Accounts
Receivable.
9 Issued a credit memorandum for $4,700 to the customer for merchandise
returned.
16 Received a check for the amount due from the sale.
EXERCISE C-3
Adjusting entries for
merchandise inventory—
periodic inventory system
Data assembled for preparing the work sheet for Meridian Co. for the fiscal year
ended December 31, 2006, included the following:
Merchandise inventory as of January 1, 2006
Merchandise inventory as of December 31, 2006
$475,000
$528,300
Journalize the two adjusting entries for merchandise inventory that would appear
on the work sheet, assuming that the periodic inventory system is used.
EXERCISE C-4
Identification of missing
items from income
statement—periodic
inventory system
EXERCISE C-5
Multiple-step income
statement—periodic
inventory system
Gross profit: $230,560
For (a) through (i), identify the items designated by “X” and “Y.”
a.
b.
c.
d.
e.
f.
g.
h.
i.
Sales (X Y) Net sales
Purchases (X Y) Net purchases
Net purchases X Cost of merchandise purchased
Merchandise inventory (beginning) Cost of merchandise purchased X
Merchandise available for sale X Cost of merchandise sold
Net sales Cost of merchandise sold X
Gross profit Operating expenses X
X Y Operating expenses
Income from operations X Y Net income
Selected data for Canyon Ferry Stores Company for the year ended December 31,
2006, are as follows:
Merchandise inventory, January 1
Merchandise inventory, December 31
Purchases
Purchases discounts
Purchases returns and allowances
$
85,760
102,240
1,051,200
12,800
24,800
Sales
Sales discounts
Sales returns and allowances
Transportation in
$1,288,000
10,400
13,920
36,000
Prepare a multiple-step income statement through gross profit for Canyon Ferry
Stores Company for the current year ended December 31.
EXERCISE C-6
Adjusting and closing
entries—periodic inventory
system
Selected account titles and related amounts appearing in the Income Statement and
Balance Sheet columns of the work sheet of Southern Bell Company for the year
ended December 31 are listed in alphabetical order as follows:
Administrative Expenses
Building
Cash
Connie Sorum, Capital
Connie Sorum, Drawing
Interest Expense
Merchandise Inventory (1/1)
Merchandise Inventory (12/31)
Notes Payable
Office Supplies
$ 72,000
312,500
58,500
433,080
40,000
2,500
300,000
275,000
25,000
10,600
Purchases
Purchases Discounts
Purchases Returns and Allowances
Salaries Payable
Sales
Sales Discounts
Sales Returns and Allowances
Selling Expenses
Store Supplies
Transportation In
$ 820,000
14,000
9,000
4,220
1,450,000
18,000
32,000
240,200
7,700
21,300
All selling expenses have been recorded in the account entitled Selling Expenses,
and all administrative expenses have been recorded in the account entitled Administrative Expenses. Assuming that Southern Bell Company uses the periodic inventory system, journalize (a) the adjusting entries for merchandise inventory and (b)
the closing entries.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
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Problems
PROBLEM C-1
Sales-related and purchaserelated transactions—
periodic inventory system
The following were selected from among the transactions completed by Infinet Shops,
Inc., during November of the current year:
Nov. 2. Purchased merchandise on account from Loftin Co., list price $24,000,
trade discount 25%, terms FOB destination, 2/10, n/30.
8. Sold merchandise for cash, $8,100.
9. Purchased merchandise on account from Chestnut Co., $12,000, terms
FOB shipping point, 2/10, n/30, with prepaid transportation costs of $180
added to the invoice.
10. Returned $3,000 of merchandise purchased on November 2 from Loftin Co.
11. Sold merchandise on account to Fawcett Co., list price $2,500, trade discount 20%, terms 1/10, n/30.
12. Paid Loftin Co. on account for purchase of November 2, less return of
November 10 and discount.
15. Sold merchandise on nonbank credit cards and reported accounts to the
card company, American Express, $9,850.
19. Paid Chestnut Co. on account for purchase of November 9, less discount.
21. Received cash on account from sale of November 11 to Fawcett Co., less
discount.
25. Sold merchandise on account to Clemons Co., $3,000, terms 1/10, n/30.
28. Received cash from American Express for nonbank credit card sales of
November 15, less $380 service fee.
30. Received merchandise returned by Clemons Co. from sale on November 25,
$1,700.
Instructions
Journalize the transactions for Infinet Shops, Inc., in a two-column general journal.
PROBLEM C-2
Sales-related and purchaserelated transactions—
periodic inventory system
The following were selected from among the transactions completed by Copra Sentry Company during July of the current year:
July 3. Purchased merchandise on account from Swanson Co., list price $60,000,
trade discount 30%, terms FOB shipping point, 2/10, n/30, with prepaid
transportation costs of $1,200 added to the invoice.
4. Purchased merchandise on account from Lambert Co., $8,000, terms FOB
destination, 1/10, n/30.
7. Sold merchandise on account to Walsh Co., list price $12,000, trade discount 20%, terms 2/10, n/30.
9. Returned merchandise purchased on July 4 from Lambert Co., $1,300.
13. Paid Swanson Co. on account for purchase of July 3, less discount.
14. Paid Lambert Co. on account for purchase of July 4, less return of July 9
and discount.
17. Received cash on account from sale of July 7 to Walsh Co., less discount.
19. Sold merchandise on nonbank credit cards and reported accounts to the
card company, American Express, $7,450.
22. Sold merchandise on account to Wu Co., $4,420, terms 2/10, n/30.
24. Sold merchandise for cash, $4,350.
25. Received merchandise returned by Wu Co. from sale on July 22, $1,610.
31. Received cash from American Express for nonbank credit card sales of
July 19, less $290 service fee.
Instructions
Journalize the transactions for Copra Sentry Co. in a two-column general journal.
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
PROBLEM C-3
Sales-related and purchaserelated transactions for
seller and buyer—periodic
inventory system
The following selected transactions were completed during May between Simkins
Company and Burk Co.:
May 6. Simkins Company sold merchandise on account to Burk Co., $18,500,
terms FOB destination, 2/15, n/eom.
6. Simkins Company paid transportation costs of $600 for delivery of merchandise sold to Burk Co. on May 6.
10. Simkins Company sold merchandise on account to Burk Co., $15,750,
terms FOB shipping point, n/eom.
11. Burk Co. returned merchandise purchased on account on May 6 from
Simkins Company, $5,500.
14. Burk Co. paid transportation charges of $300 on May 10 purchase from
Simkins Company.
17. Simkins Company sold merchandise on account to Burk Co., $30,000,
terms FOB shipping point, 1/10, n/30. Simkins prepaid transportation costs
of $1,750, which were added to the invoice.
21. Burk Co. paid Simkins Company for purchase of May 6, less discount and
less return of May 11.
27. Burk Co. paid Simkins Company on account for purchase of May 17, less
discount.
31. Burk Co. paid Simkins Company on account for purchase of May 10.
Instructions
Journalize the May transactions for (1) Simkins Company and for (2) Burk Co.
PROBLEM C-4
Preparation of work sheet,
financial statements, and
adjusting and closing
entries—periodic inventory
system
1. Net income: $222,950
The accounts and their balances in the ledger of Sunshine Sports Co. on December
31, 2006, are as follows:
Cash
Accounts Receivable
Merchandise Inventory
Prepaid Insurance
Store Supplies
Office Supplies
Store Equipment
Accumulated Depreciation—
Store Equipment
Office Equipment
Accumulated Depreciation—
Office Equipment
Accounts Payable
Salaries Payable
Unearned Rent
Note Payable (final payment, 2013)
Sherri Vogel, Capital
Sherri Vogel, Drawing
Income Summary
Sales
Sales Returns and Allowances
$ 28,000
142,500
200,000
9,700
4,250
2,100
132,000
40,300
50,000
17,200
56,700
—
1,200
100,000
159,600
40,000
—
960,000
11,900
Sales Discounts
Purchases
Purchases Returns and Allowances
Purchases Discounts
Transportation In
Sales Salaries Expense
Advertising Expense
Depreciation Expense—
Store Equipment
Store Supplies Expense
Miscellaneous Selling Expense
Office Salaries Expense
Rent Expense
Insurance Expense
Depreciation Expense—
Office Equipment
Office Supplies Expense
Miscellaneous Administrative
Expense
Rent Revenue
Interest Expense
$ 7,100
500,000
10,100
4,900
11,200
81,400
45,000
—
—
1,600
44,000
26,000
—
—
—
1,650
—
11,600
The data needed for year-end adjustments on December 31 are as follows:
Merchandise inventory on December 31
Insurance expired during the year . . . . .
Supplies on hand on December 31:
Store supplies . . . . . . . . . . . . . . . . . .
Office supplies . . . . . . . . . . . . . . . . . .
Depreciation for the year:
Store equipment . . . . . . . . . . . . . . . .
Office equipment . . . . . . . . . . . . . . . .
Salaries payable on December 31:
Sales salaries . . . . . . . . . . . . . . . . . . .
Office salaries . . . . . . . . . . . . . . . . . .
Unearned rent on December 31 . . . . . .
.......................
.......................
$215,000
4,800
.......................
.......................
1,300
750
.......................
.......................
7,500
3,800
.......................
.......................
.......................
$4,000
2,000
6,000
400
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Appendix C • Periodic Inventory Systems for Merchandising Businesses
C-13
Instructions
1. Prepare a work sheet for the fiscal year ended December 31, listing all accounts
in the order given.
2. Prepare a multiple-step income statement.
3. Prepare a statement of owner’s equity.
4. Prepare a report form of balance sheet, assuming that the current portion of the
note payable is $10,000.
5. Journalize the adjusting entries.
6. Journalize the closing entries.
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