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Chapter 5.5
Appendix 5A
One key difference in the two systems is when the cost of goods sold. In periodic, revenues from the
sale of merchandise are recorded when sales are made, in the same way as perpetual. However, on the
sale date, perpetual also allocates the cost of goods sold and the merchandise.
Under a periodic system, purchases of merchandise are made in an expense account Purchases rather
than merchandise. Freight costs, purchases returns and allowance, and purchase discounts are all
separate accounts.
Recording Purchases of Merchandise
Purchasing Æ DR purchases, CR cash or a/p
Freight costs Æ DR Freight in, CR cash
Purchases returns and allowances Æ DR a/p, CR Purchase returns and allowance
Purchase discounts Æ DR a/p, CR Cash, Purchase discounts
Recording Sales of Merchandise
Sale Æ DR Sales, CR Cash or A/R
Freight costs Æ DR freight out, CR Cash
Sales returns and allowance Æ DR sales returns and allowance, CR A/R
Sales discounts Æ DR Cash, sales discount, CR A/R
Comparison of Entries t Perpetual vs. Periodic
Transaction
Perpetual
Periodic
Purchase
Merchandise
Purchases
Freight costs
Merchandise
Freight in
Purchases returns and allowance
Merchandise
Purchases returns and allowance
Payment discount
Merchandise
Purchases discounts
Sales
Cost of goods sold, merchandise
----
Return of merchandise
Merchandise, cost of goods sold
----
Receiving discount
Same
Same
Calculating Cost of Goods Sold
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Document Summary

One key difference in the two systems is when the cost of goods sold. In periodic, revenues from the sale of merchandise are recorded when sales are made, in the same way as perpetual. However, on the sale date, perpetual also allocates the cost of goods sold and the merchandise. Under a periodic system, purchases of merchandise are made in an expense account purchases rather than merchandise. Freight costs, purchases returns and allowance, and purchase discounts are all separate accounts. Purchasing dr purchases, cr cash or a/p. Freight costs dr freight in, cr cash. Purchases returns and allowances dr a/p, cr purchase returns and allowance. Purchase discounts dr a/p, cr cash, purchase discounts. Sale dr sales, cr cash or a/r. Freight costs dr freight out, cr cash. Sales returns and allowance dr sales returns and allowance, cr a/r. Sales discounts dr cash, sales discount, cr a/r.

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