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Chapter 5: Q30RQ (page 295)

Highlight the differences in the closing process when using the periodic inventory system rather than the perpetual inventory system.

Short Answer

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Answer

The perpetual inventory system records the adjusting entries, while the periodic inventory system does not requireadjusting entries.

Step by step solution

01

Meaning of Inventory System

An inventory system refers to the management system that tracks the inventories of business entities through different methods. It facilitates the businesses to manage theirinventory levels to keep theiroperationsefficient.

02

Differences

In the perpetual inventory system, adjusting entries are passed at the end of accounting. In comparison, no adjusting entry is required under the periodic inventory system.

The periodic inventory system does not close the revenues and expenses accounts. In contrast, the perpetual inventory system closes the revenues and expenses accounts and posts them into the income summary account.

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Most popular questions from this chapter

Triton Department Store uses a periodic inventory system. The adjusted trial balance of Triton Department Store at December 31, 2018, follows:

TRITON DEPARTMENT STORE

Adjusted Trial Balance

December 31, 2018

Balance

Account Title Debit Credit

Cash \(8,200

Accounts Receivable 84,600

Merchandise Inventory (beginning) 37,800

Office Supplies 850

Furniture 86,000

Accumulated Depreciation-Furniture \)18,500

Accounts Payable 29,400

Salaries Payable 2,300

Unearned Revenue 14,900

Notes Payable, long-term 36,000

Common Stock 60,000

Retained Earnings 22,850

Dividends 88,600

Sales Revenue 374,000

Purchases 295,000

Purchase Returns and Allowances 109,000

Purchase Discounts 6,400

Freight-In 300

Selling Expense 41,700

Administrative Expense 26,600

Interest Expense 3,700

Total \(673,350 \)673,350

Requirements

1. Prepare Triton Department Store’s multi-step income statement for the year ended December 31, 2018. Assume ending Merchandise Inventory is $36,300.

2. Journalize Triton Department Store’s closing entries.

What account is debited when recording a purchase of inventory when using a periodic inventory system?

Describe the operating cycle of a merchandiser.

What are the two journal entries involved when recording the sale of inventory when using the perpetual inventory system?

Click Computers has the following transactions related to the sale of merchandise inventory.

Mar. 1 Sold a computer (cost of \(3,000) for \)8,000 to a customer. The customer paid cash. The sales price included a one-year service contract valued at $168.

Dec. 31 Recorded the amount of service contract earned.

Journalize the transactions for Click Computers assuming that the company uses the perpetual inventory system.
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