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chinargandhi
February 21, 2019
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Journal entry for periodic inventory and COGS.

  • February 21, 2019
  • 2 replies
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Hello,

Can someone guide me if following journal entry for recording inventory and getting Cost of goods sold amount is correct? the inventory method is periodic one. Every month I will take opening and closing inventory from the client's software and adjust it with monthly purchase amount to get COGS amount and also to record inventory.

 

Inventory a/c (closing balance)...Dr.

Cost of goods sold (Bal. amount)...Dr.

     To Inventory a/c (Opening balance)  Cr.

     To Purchases a/c (monthly purhcases)  Cr.

 

 

Thank you.

Best answer by Rustler
@chinargandhi wrote:

Hello,

Can someone guide me if following journal entry for recording inventory and getting Cost of goods sold amount is correct? the inventory method is periodic one. Every month I will take opening and closing inventory from the client's software and adjust it with monthly purchase amount to get COGS amount and also to record inventory.

 

Inventory a/c (closing balance)...Dr.

Cost of goods sold (Bal. amount)...Dr.

     To Inventory a/c (Opening balance)  Cr.

     To Purchases a/c (monthly purhcases)  Cr.

 

 

Thank you.

I.m not sure what you are doing since you do not say what type of account each is

 

If you post the purchase to an asset account - then value the ending on hand inventory, subtract that amount from the balance in the asset account and do a journal entry

debit cogs, credit asset for the answer to the subtraction

 

My explanation of periodic inventory

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

2 replies

Rustler
RustlerAnswer
February 22, 2019
@chinargandhi wrote:

Hello,

Can someone guide me if following journal entry for recording inventory and getting Cost of goods sold amount is correct? the inventory method is periodic one. Every month I will take opening and closing inventory from the client's software and adjust it with monthly purchase amount to get COGS amount and also to record inventory.

 

Inventory a/c (closing balance)...Dr.

Cost of goods sold (Bal. amount)...Dr.

     To Inventory a/c (Opening balance)  Cr.

     To Purchases a/c (monthly purhcases)  Cr.

 

 

Thank you.

I.m not sure what you are doing since you do not say what type of account each is

 

If you post the purchase to an asset account - then value the ending on hand inventory, subtract that amount from the balance in the asset account and do a journal entry

debit cogs, credit asset for the answer to the subtraction

 

My explanation of periodic inventory

1. (my preference) Create an asset account called purchases and post all purchases of item for resale to that account. Periodically, weekly, monthly, etc value the inventory on hand, subtract that value from the amount shown in the purchases account and do a journal entry for the answer to the subtraction
debit COGS for that value
credit purchases for that value

OR

2. Post all purchases to COGS. Periodically, but at least at the end of the year, you value the inventory on hand and do a journal entry.
debit the asset purchases account for that value
credit COGS for that value

Print the P&L
then reverse the journal entry
debit COGS for that same value
credit the asset purchases account for that value

This last journal entry, moves the value of what was on hand at the end of year back to COGS so the cost will be counted against the new year sales.

    C
    chinargandhiAuthor
    February 26, 2019

    Thank you for your help. Your suggestion helped me make correct journal entry. I used first option.

     

    Thank you once again.

    E
    ellswortha
    March 16, 2022

    Thanks for your response to this question! Have a couple questions I hope you can clarify. My company posts all purchases to COGS (e.g. Resale Candy Expense) as described in scenario 2 and has multiple asset accounts (e.g., Resale Candy Inventory) which are set up with Other Current Assets Detail Type instead of Inventory since our products are set up as Non-inventory. When you say "debit the asset purchases account for that value", do you mean the value of the entire inventory, or the difference between beginning and ending? Also after reversing the journal entry, is there then another journal entry to debit COGS and credit the asset account, or is the reversal the last step?

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