Periodic System and

Perpetual System

PERIODIC SYSTEM
— the inventory account and cost of goods sold account are
updated at the end of a set period.
— once a month/quarter/year
— businesses that sell relatively few inventory units a month

💡 car dealership and art galleries

PERPETUAL SYSTEM
— tracks the inventory balances continuously with updates made
automatically whenever a product is received or sold.
— businesses with high sales volume and multiple retail outlets

💡 grocery stores, hardware stores

EXAMPLE TRANSACTIONS USING THE PERPETUAL SYSTEM

SOLD MERCHANDISE PURCHASED MERCHANDISE

Accounts Receivable - debit Inventory - debit

Sales - credit Accounts Payable - credit
Cost of Sales - debit or Cash

Periodic System and Perpetual System 1

 Inventory - credit

RETURNED MERCHANDISE
CUSTOMER RETURNED Accounts Payable - debit
MERCHANDISE
or Cash
Sales Returns and - debit
Inventory - credit
Allowances
Accounts Receivable - credit
PAID MERCHANDISE
Inventory - debit
Accounts Payable - debit
Cost of Sales - credit
Purchase Discount - credit
Cash - credit
RECEIVED PAYMENT

Cash
Sales Discount
- debit
- debit
💡 (sale - return) x
(discount)

Accounts Receivable - credit

PAID FREIGHT COST

Inventory - debit

Cash - credit

💡 TERM 2/10, N/30 - 2% discount is given if paid within 10

days, transaction must be paid within 30 days.

— 𝓵𝓪𝓵𝓪𝓲𝓷𝓮

Periodic System and Perpetual System 2