Question

talk about inventory, there are two systems that can be used to track our purchases and sales: the Perpetual Inventory System and the Periodic Inventory System. Please post your answers to the two questions below.

1.As a new business owner, which inventory system would you select? Please provide the details of this “make believe” new business. What were your consideration factors?

2.Which FOB Shipping Point and FOB Destination Point would you offer to your customers? What are the possible effects to your sales (what kind of products are you selling)? How can you use shipping method as your competitive advantages?This discussion is worth 10 points. Please post an original initial post in complete sentences and then post 2 substantive replies to classmates’ posts.

Answer 1

A. Periodic inventory system. Under this system the amount appearing in the Inventory account is not updated when purchases of merchandise are made from suppliers. Rather, the Inventory account is commonly updated or adjusted only once—at the end of the year. During the year the Inventory account will likely show only the cost of inventory at the end of the previous year.

Under the periodic inventory system, purchases of merchandise are recorded in one or more Purchases accounts. At the end of the year the Purchases account(s) are closed and the Inventory account is adjusted to equal the cost of the merchandise actually on hand at the end of the year. Under the periodic system there is no Cost of Goods Soldaccount to be updated when a sale of merchandise occurs.

In short, under the periodic inventory system there is no way to tell from the general ledger accounts the amount of inventory or the cost of goods sold.

B. Perpetual inventory system. Under this system the Inventory account is continuously updated. The Inventory account is increased with the cost of merchandise purchased from suppliers and it is reduced by the cost of merchandise that has been sold to customers. (The Purchases account(s) do not exist.)

Under the perpetual system there is a Cost of Goods Sold account that is debited at the time of each sale for the cost of the merchandise that was sold. Under the perpetual system a sale of merchandise will result in two journal entries: one to record the sale and the cash or accounts receivable, and one to reduce inventory and to increase cost of goods sold.

Ans Q1)

As a New Owner if my business deals with supermarkets, drug stores, convenience stores, auto dealers, auto parts, heavy trucks and trailers, farm equipment, construction equipments, and liquor beer or wine stores; Then I will preferably opt for LIFO method.

Also if i am in sectors like building products and hardware, steel product selling, electrical supply, farm and ranch supply stores, dollar stores, sporting goods store, apparel stores, electronic stores, furniture stores and grocery and food products distribution, LIFO is the best way of valuing current assets.

On the other hand, if i have small business or deal with perishable products like fruits and vegetables, and goods for export. Since all perishable products come with an expiry date, therefore the first ones bought are sold out first, to reduce the number of archaic inventories. Sectors like railway and banks also use FIFO method.

Q2) Not Understand as i believe the asked question is half please provide full question to answer