Question

Home Hardware reported beginning inventory of 20 shovels, for a total cost of $100. The company had the following transactions during the month:

Jan. 2	Sold 4 shovels on account at a selling price of $10 per unit.
16	Sold 10 shovels on account at a selling price of $10 per unit.
18	Bought 5 shovels on account at a cost of $5 per unit.
19	Sold 10 shovels on account at a selling price of $10 per unit.
24	Bought 10 shovels on account at a cost of $5 per unit.
31	Counted inventory and determined that 10 units were on hand.

1. Prepare the journal entries that would be recorded using a periodic inventory system.

2. Prepare the journal entries that would be recorded using a perpetual inventory system, including any “book-to-physical” adjustment that might be needed.

Answer 1

1.

Opening		20
Buy	5
	10	15
Sales	(4)
	(10)
	(10)	(24)
	Closing Stocks	11
	Physical stock	10
	Shortage	1

Periodic Inventory System
Date	Particulars	Dr.($)	Cr.($)
2-Jan	Account Receivable	40
	Sales		40
	(Sold 4 shovels on account at a selling price of $10 per unit)
16-Jan	Account Receivable	100
	Sales		100
	(Sold 10 shovels on account at a selling price of $10 per unit)
18-Jan	Purchases	25
	Account Payable		25
	(Bought 5 shovels on account at a cost of $5 per unit)
19-Jan	Account Receivable	100
	Sales		100
	(Sold 10 shovels on account at a selling price of $10 per unit)
24-Jan	Purchases	50
	Account Payable		50
	(Bought 10 shovels on account at a cost of $5 per unit)
31-Jan	Inventory	50
	Cost of Goods Sold	125
	Purchases		75
	Inventory		100
	(For updating inventory, closing stock & over short)

2.

Periodic Inventory System Date Particulars Dr.($) Cr.($) 2-Jan Account Receivable 40 Sales 40 (Sold 4 shovels on account at a selling price of $10 per unit) 16-Jan Account Receivable 100 Sales 100 (Sold 10 shovels on account at a selling price of $10 per unit) 18-Jan Purchases 25 Account Payable 25 (Bought 5 shovels on account at a cost of $5 per unit) 19-Jan Account Receivable 100 Sales 100 (Sold 10 shovels on account at a selling price of $10 per unit) 24-Jan Purchases 50 Account Payable 50 (Bought 10 shovels on account at a cost of $5 per unit) 31-Jan Inventory(Closing inventory) 50 Cost of Goods Sold(balancing figure) 125 Purchases 75 Inventory(beginning inventory 100 (For updating inventory, closing stock & over short)