Question

Prepare the adjusting entry to record cost of goods sold (under FIFO) for 2018 and adjust...

Prepare the adjusting entry to record cost of goods sold (under FIFO) for 2018 and adjust the inventory account to its year-end balance.

How to do the entry on the periodic approach ?? is it correct to say

Cost of Good Sold      2,738,545

Purchese 2,738,545. ????? or inventory ???

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Answer #1
  • Under perpetual inventory system, Cost of Goods Sold and Inventory balance get adjusted after every sales transaction.
  • However, when periodic system is used, Cost of Goods Sold is adjusted at the year end.
  • TO adjust the ending inventory balance, Cost of Goods Sold is Debited and Inventory account is credited.
  • For example, the physical count of ending inventory showed that $ 245,000 exist, while at FIFO valuation, the ending inventory was $ 250,000.

Here, the cost of Goods Sold is debited by $ 5000, and Inventory is to be credited.

  • Hence, correct way is to debit Cost of Goods Sold and Credit Inventory (not Purchases) account.
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