Journal entries to record inventory transactions under a periodic inventory system



[Q1] An entity uses a periodic inventory system.
The entity purchased $24,000 inventory on account.
Prepare a journal entry to record this transaction.

[Journal Entry]

  Debit Credit
Purchases 24,000  
     Accounts payable   24,000

[Notes]
Debit: Increase in purchases
Credit: Increase in accounts payable
Under a periodic inventory system, inventory purchases during the period are recorded in the “Purchases” account, not “Inventory” account.
Under a periodic inventory system, inventory account is updated at the end of the period, not during the period.

[Q2] At the end of the period, the entity in the previous example took physical inventory taking and counted $4,000 inventory in the warehouse.
Prepare a journal entry to record this transaction.

[Journal Entry]

  Debit Credit
Inventory 4,000  
Cost of sales 20,000  
     Purchases   24,000

[Notes]
Debit: Increase in inventory and increase in cost of sales
Credit: Decrease in purchases
At the end of the period, $24,000 amount in the purchases account is allocated to the inventory account by $4,000 and cost of sales account by $20,000.

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