Q5. Recording Inventory Transactions
How are inventory transactions recorded?
1. Inventory transactions may be recorded using one of the following methods:
(1) Perpetual inventory system
(2) Periodic inventory system
2. Under a perpetual inventory system, inventory account balance is updated continuously during the period.
(1) Purchases of inventory increase the inventory account balance.
(2) Sales of inventory decrease the inventory account balance.
3. Under a periodic inventory system, inventory account balance is updated at the end of each period.
(1) Purchases of inventory are recorded in the purchases account during the period.
(2) Inventory account balance is not updated during the period.
(3) The balance of the purchases account is transferred to the following accounts at the end of each period:
a. Cost of goods sold