Question

Burr Industries has the following events transpire in June of 2020: Event Details Buy Inventory Buy 6,000 units of inventory for $6/unit on credit. Sell Inventory Sell 4,765 units of inventory for $44/unit on credit. Close Books Books are closed for the month of June.

Burr Industries has the following events transpire in June of 2020:

Event	Details
Buy Inventory	Buy 6,000 units of inventory for $6/unit on credit.
Sell Inventory	Sell 4,765 units of inventory for $44/unit on credit.
Close Books	Books are closed for the month of June.

Additional Info:         Inventory is always purchased for $6/unit. Beginning inventory is 1,840 units.

Assuming Burr uses the Periodic Inventory System, please provide the necessary journal entries. If no entry is required, please put “N/A”

You may round your answers to the nearest dollar.

(A) Please provide the journal entry for the purchase of inventory:

(B) Please provide the journal entry for the sale of inventory:

(C) Please provide the journal entry which Burr would record when closing its books/the adjusting entry relating to inventory:

Answer 1

Under periodic inventory system inventory account is not updated for each purchase and each sale. All purchases are debited to purchases account. At the end of the period, the total in purchases account is added to the beginning balance of the inventory to compute cost of goods available for sale. The ending inventory is determined at the end of the period by a physical count and subtracted from the cost of goods available for sale to compute the cost of goods sold.

The general formula to compute cost of goods sold under periodic inventory system is given below:

Cost of goods sold (COGS) = Beginning inventory + Purchases – Closing inventory

Journal entries for the month of June
Accounts	Amount $		Explanation
	Debit	Credit
Purchases A/c	$     36,000		for the purchase 6,000 units of inventory for $6/unit on credit
Accounts Payable		$   36,000
Accounts Receivable A/c	$   209,660		for sale of 4,765 units of inventory for $44/unit on credit
Sales A/c		$ 209,660
Inventory (Ending)	$     18,450		for the adjusting entry relating to inventory
Cost of goods sold *	$     28,590
Purchase		$   36,000
Inventory (Begining)		$   11,040

* Calculation for Cost of goods sold (COGS)
	Units	Rate/unit	Value
Beginning inventory	1,840	$             6	$ 11,040
Add: Purchases	6,000	$             6	$ 36,000
Less: Ending inventory (Beginning inventory+Purchases-Sales)	3,075	$             6	$ 18,450
Cost of goods sold (COGS)			$ 28,590