Question

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 ???

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.