Journal entry for periodic inventory and COGS.

chinargandhi · ‎February 21, 2019

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.

Rustler · ‎February 22, 2019

@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.

View solution in original post

Rustler · ‎February 22, 2019

@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.

chinargandhi · ‎February 26, 2019

Thank you for your help. Your suggestion helped me make correct journal entry. I used first option.

Thank you once again.

ellswortha · ‎March 16, 2022

Thanks for your response to this question! Have a couple questions I hope you can clarify. My company posts all purchases to COGS (e.g. Resale Candy Expense) as described in scenario 2 and has multiple asset accounts (e.g., Resale Candy Inventory) which are set up with Other Current Assets Detail Type instead of Inventory since our products are set up as Non-inventory. When you say "debit the asset purchases account for that value", do you mean the value of the entire inventory, or the difference between beginning and ending? Also after reversing the journal entry, is there then another journal entry to debit COGS and credit the asset account, or is the reversal the last step?

jsaz · ‎March 30, 2022

So, I have a similar situatiation. I am setting up a brand new set of books. They have an inventory system with another piece of software that gives us an ending inventory.

I think I see my mistake. I have been coding bills I pay for the product they sell to COGS-Purchases as an expense acct not a asset acct.

How do I correct my mistakes? I'm lucking that I only have 2 months of data in the system to reclassify.

Is there a way to reclassify all the COGS Puchases (exp acct) to an Asset account? Where is that Asset acct gong to show up on the financial statements

Then I can do my JE?

Topics

Training

Community

Resources

Journal entry for periodic inventory and COGS.