- Record Purchases under a perpetual system
In previous sections, we’ve been using the periodic system to record Bryan Wholesale Co. and Geyer, Co. transactions. Let’s continue to use the same companies and record this invoice using a perpetual system for Geyer, Co.:
Date | Description | Post. Ref. | Debit | Credit |
---|---|---|---|---|
20XX | ||||
Dec 19 | Merchandise Inventory | 20,700.00 | ||
Dec 19 | Accounts Payable | 20,700.00 | ||
Dec 19 | To record purchase of XPS-101 from Bryan Whls 200 count |
This invoice looks logical and simple, and it is, except we also have to keep a subsidiary ledger listing all the items in stock and the assigned cost. The subsidiary ledger might look something like this:
Geyer, Co. | ||||
12/19/20XX | ||||
Product ID | Description | Unit Cost | Quantity in Stock | Total Inventory Value |
---|---|---|---|---|
A101 | Wiring harness | 99.00 | 30 | 2,970.00 |
CAB 500 | HQ Speakers | 58.00 | 500 | 29,000.00 |
CAB 600 | HQ Speakers | 99.00 | 15 | 1,485.00 |
MMM 333 | GPS enabled sound system | 1,255.50 | 65 | 81,607.50 |
Rel 5 | HQ Speakers | 110.00 | 100 | 11,000.00 |
RFS-212 | GPS enabled sound system | 650.00 | 150 | 97,500.00 |
XPS-101 | GPS enabled sound system | 103.50 | 200 | 20,700.00 |
Total Inventory Value | $ 244,262.50 |
The subsidiary ledger should (MUST) match the GL control account as we make the entry to both ledgers.
The GL account doesn’t give us the details we need. We rely on the subsidiary ledger for that.
Next, we return 40 units and post the journal entry to both ledgers:
Date | Description | Post. Ref. | Debit | Credit |
---|---|---|---|---|
20– | ||||
Dec 26 | Accounts Payable | 4,000.00 | ||
Dec 26 | Merchandise Inventory | 4,000.00 | ||
Dec 26 | To record return on 40 XPS-101 to Bryant C.M 12-3–G |
Our inventory list (subsidiary ledger) looks like this:
Geyer, Co. | ||||
12/19/20XX | ||||
Product ID | Description | Unit Cost | Quantity in Stock | Total Inventory Value |
---|---|---|---|---|
A101 | Wiring harness | 99.00 | 30 | 2,970.00 |
CAB 500 | HQ Speakers | 58.00 | 500 | 29,000.00 |
CAB 600 | HQ Speakers | 99.00 | 15 | 1,485.00 |
MMM 333 | GPS enabled sound system | 1,255.50 | 65 | 81,607.50 |
Rel 5 | HQ Speakers | 110.00 | 100 | 11,000.00 |
RFS-212 | GPS enabled sound system | 650.00 | 150 | 97,500.00 |
XPS-101 | GPS enabled sound system | 104.375 | 160 | 16,700.00 |
Total Inventory Value | $ 240,262.50 |
And matches the GL control account:
You can see how the GL control account would only give you a running total, while the subsidiary ledger gives you the detail by part number, just as the Accounts Receivable subsidiary ledger gives you receivables by customer and the Accounts Payable subsidiary ledger will give you payables (bills) by vendor.
In the Accounts Payable subsidiary ledger, we see that we owe Bryan $16,700 on invoice 1258.
Now let’s see what happens when we pay and take the discount:
Date | Description | Post. Ref. | Debit | Credit |
---|---|---|---|---|
20– | ||||
Dec 29 | Accounts Payable | 16,700.00 | ||
Dec 29 | Merchandise Inventory | 320.00 | ||
Dec 29 | Checking Account | 16,380.00 | ||
Dec 29 | To record payment on Bryan inv. 1258 |
We (our computer, actually) posts the entry to the ledgers:
Debit | Credit |
---|---|
223,562.50 | |
20,700.00 | |
4,000.00 | |
320.00 | |
Double line 239,942.50 | Double line |
Geyer, Co. | ||||
12/19/20XX | ||||
Product ID | Description | Cost | Quantity in Stock | Total Inventory Value |
---|---|---|---|---|
A101 | Wiring harness | 99.00 | 30 | 2,970.00 |
CAB 500 | HQ Speakers | 58.00 | 500 | 29,000.00 |
CAB 600 | HQ Speakers | 99.00 | 15 | 1,485.00 |
MMM 333 | GPS enabled sound system | 1,255.50 | 65 | 81,607.50 |
Rel 5 | HQ Speakers | 110.00 | 100 | 11,000.00 |
RFS-212 | GPS enabled sound system | 650.00 | 150 | 97,500.00 |
XPS-101 | GPS enabled sound system | 102.375 | 160 | 16,380.00 |
Total Inventory Value | $ 239,942.50 |
Using the net method would be similar; it would just post the net at first, and adjust the cost of merchandise inventory upward if the accounting staff missed the deadline.