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Perpetual vs periodic inventory systems

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Why are perpetual inventory systems so much more popular today than back in the early 1960s and earlier? Why would a company employing a perpetual inventory system still take a physical inventory periodically?

What are the journal entries a merchandising organization would use to record the purchase and subsequent sale of merchandise? How would these transactions differ with a periodic versus a perpetual inventory system?

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Perpetual inventory systems are more popular today for several reasons:

1. Computerized accounting systems allow sales to be costed out at the time of the sale transaction. POS (point of sale software) automatically reduces inventory when a sale is recorded.
2. Perpetual systems allow for monthly or even daily financial statements to track sales and cost of sales. Fifty years ago, a company really didn't know the financial results of a year of business until after inventory was counted and adjusted in the accounting records.
3. Modern inventory systems allow businesses to quickly adjust to changing prices, competitive issues and other marketing and supply problems.

Why would a company employing a perpetual inventory system ...

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The 463 word solution fully answers the questions together with a number of examples and further explanations.

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See Also This Related BrainMass Solution

Assignment on Financial Accounting

Blue Demon Company has the following inventory, purchases and sales data for the month of June 2008.

Inventory: June 1 400 units @ $4.00 $1,600
Purchases:
June 10 1,000 units @ $4.50 4,500
June 20 800 units @ $4.75 3,800
June 30 600 units @ $5.00 3,000
Sales:
June 15 1,000 units Sales Price $8 each
June 25 800 units Sales Price $8 each

The physical inventory count on June 30 shows 1,000 units on hand

Required: Show all calculations

1.Calculate the cost of goods available for sale
2.Under the periodic inventory system, determine the cost of inventory on hand at June 30 and the cost of goods sold for June under
a. first-in, first-out (FIFO) method
b. last-in, first-out (LIFO) method
c. average cost method
3.Under the perpetual inventory system, determine the cost of inventory on hand at June 30 and the cost of goods sold for June under
a. first-in, first-out (FIFO) method
b. last-in, first-out (LIFO) method
c. average cost method
4.Prepare a table showing the financial statement effects of these Inventory Costing Methods under the periodic system and the perpetual system.
a. Income Statement -
i. Sales
ii. Cost of Goods Sold
iii. Gross Margin
b. Balance Sheet
i. Merchandise Inventory

Suggested example of Table:
Income Statement: Periodic
FIFO Periodic
LIFO Periodic
Weighted Average Perpetual
FIFO Perpetual
LIFO Perpetual
Moving Average
Sales
Cost of Goods Sold
Gross Margin

Balance Sheet:
Inventory

Show your calculations. Below is a suggested format. .

Cost of Goods Available for sale:

Date # and $ Total
Inventory:
Purchases:

Total cost of goods available for sale

Periodic System

FIFO Method:

Ending Inventory in $:

Date Units Unit Cost Total Cost

Cost of Goods Sold in $:

LIFO Method:

Ending Inventory in $:

Date Units Unit Cost Total Cost

Cost of Goods Sold in $:

Average Cost Method:

Ending Inventory in $:

Cost of Goods Sold in $:

Perpetual Inventory System:

FIFO Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

Perpetual Inventory System Continued

LIFO Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

Average Cost Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

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