Wize University Introduction to Financial Accounting Textbook > Merchandising
Recording Cost of Goods Sold - Periodic Inventory
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Recording Cost of Goods Sold (Periodic)
Since inventory and cost of goods sold are not continuously updated under the periodic system, an adjusting journal entry is required at the end of the accounting period to bring these accounts up to date.
Computing Cost of Good Sold
Adjusting Inventory and COGS
- Adjust beginning inventory to ending inventory
- Debit COGS using formula to find the amount
- Reduce all temporary accounts to zero
- Purchases:credit
- Purchase discounts:debit
- Purchase returns and allowances:debit
- Freight-in:credit
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Example: Recording Cost of Goods Sold (Periodic)
Prepare the adjusting journal entry to record cost of goods sold at the end of the year.
Additional information:
- Beginning inventory: $40,000
- Purchases: $90,000
- Purchase returns and allowances: $5,000
- Purchase discounts: $3,500
- Freight in: $750
- Ending inventory: $48,500
Practice: Recording Cost of Goods Sold
ABC Inc. is a furniture retailer in Seattle, management needs your help to prepare its journal entries for the year before preparing its financial statements. The following transactions took place during January 2020. The company uses the periodic inventory system.
Additional information:
- Inventory on January 1st totalled $60,000
- A physical count of inventory on January 31st revealed that inventory balance was $37,500.
Prepare the journal entry to adjust inventory and cost of goods sold at the end of January 2020.
Transactions:
| Account | Debit | Credit |
|---|---|---|