OFFICIAL

Recording the purchase and sale of inventory when the perpetual Inventory
and periodic inventory systems are used

• The owner/business manager will decide which inventory system the business will
use.
• The decision to choose one system or the other is based on a comparison of costs
of running and maintaining the inventory system against the benefits for the
business.

Perpetual Inventory (perpetual means continuous):

• The Inventory account (asset) is used to record inventory purchased and sold
• The Cost of Goods Sold (COGS) account (expense) is used to record the cost of the
inventory sold every time the business is making a sale (whether on cash or credit).
• The value of inventory is known at any point in time.
• The use of the COGS account is an indication the business is using the perpetual
inventory system.

Journal entry to record the purchase of inventory:

Journal entries to record the sale of inventory and the cost of sale:

Periodic Inventory (periodic means from time to time)

• The business does not keep track of inventory purchased/sold or the cost of the
inventory when sold during the year.
• The inventory balance is only known on commencement of business (if the owner
introduces inventory into the business) and after a stock take is performed
(generally at the end of an accounting period).
• Purchases account (expense) used to record the purchase of inventory.

FNSACC321 OFFICIAL P a g e | 1 12 April 2023

 OFFICIAL

Journal entry to record the purchase of inventory:

Journal entry to record the sales of inventory:

FNSACC321 OFFICIAL P a g e | 2 12 April 2023