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Rustler
Level 15

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@chinargandhi wrote:

Hello,

Can someone guide me if following journal entry for recording inventory and getting Cost of goods sold amount is correct? the inventory method is periodic one. Every month I will take opening and closing inventory from the client's software and adjust it with monthly purchase amount to get COGS amount and also to record inventory.

 

Inventory a/c (closing balance)...Dr.

Cost of goods sold (Bal. amount)...Dr.

     To Inventory a/c (Opening balance)  Cr.

     To Purchases a/c (monthly purhcases)  Cr.

 

 

Thank you.


I.m not sure what you are doing since you do not say what type of account each is

 

If you post the purchase to an asset account - then value the ending on hand inventory, subtract that amount from the balance in the asset account and do a journal entry

debit cogs, credit asset for the answer to the subtraction

 

My explanation of periodic inventory

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

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