• Record sales of inventory under a periodic system

 

Recording sales under the periodic system of inventory accounting is significantly easier than recording purchases and tracking goods on hand. To illustrate, let’s go to work for Bryan Wholesale Co. for a few minutes, and recall that when Geyer records an accounts payable, the seller will record a mirror image of that transaction (more or less):

Gross Method of Recording Sales

First of all, this sale is business-to-business, so in most jurisdictions in the U.S., there won’t be a sales or value-added tax (VAT), but you have to know the law for your particular situation. For instance, sales taxes may be based on the shipping destination, and internet sales may have some different rules depending on your physical location.

Also, companies have various ways of recording shipping charges from customers. Some may post the charge as an offset to the expense, as an offset to a payable, or as an income item. Some companies may charge a flat-rate or predetermined amount for “Shipping and Handling” and may be tracking that amount against the actual expenses incurred in order to determine if they are recovering those costs or even making a profit on that activity.

Let’s assume here that Bryan posts shipping charged to customers to a revenue (income) account called Shipping billed to customers. Thus at the end of each month, the cost accountants can compare billings to customers against shipping paid. Shipping paid or freight out is NOT part of cost of goods sold, but rather is considered a selling expense.

The journal entry to record the sale looks like this (remember, we are looking at the seller’s books now):

JournalPage 101

Date	Description	Post. Ref.	Debit	Credit
20–
Dec 19	Accounts Receivable		20,700.00
Dec 19	Shipping Billed to Customers			700.00
Dec 19	Sales Revenue			20,000.00
Dec 19	To record sale of XPX-101 to Geyer inv. 1258

Geyer returns 40 units on Dec. 26, so Bryan’s accounting staff issue a credit memo and make the following entry:

JournalPage 101

Date	Description	Post. Ref.	Debit	Credit
20–
Dec 26	Sales Returns and Allowances		4,000.00
Dec 26	Accounts Receivable			4,000.00
Dec 26	To record CM –1258 to Geyer

In both cases, the accounts receivable subsidiary ledger is updated, but not inventory, because we don’t do that under the periodic method. The Bryan accounts receivable subsidiary ledger now shows that Geyer owes $16,700, and a call or letter to Geyer would verify that their accounts payable matches if they are using the gross method.

If Geyer pays after the 29th with a check for $16,700, Bryan’s accounts receivable clerk deposits the check, debits Checking Account for $16,700, and credits both the accounts receivable control account and the subsidiary ledger for the same amount showing the invoice has been paid in full.

If Geyer pays during the discount period, the journal entry looks like this:

JournalPage 101

Date	Description	Post. Ref.	Debit	Credit
20–
Dec 29	Checking Account		16,380.00
Dec 29	Sales Discounts		320.00
Dec 29	Accounts Receivable			16,700.00
Dec 29	Geyer payment on inv. 1258 less 2% disc.

Net Method of Recording Sales

Under the net method, sales would be recorded net of the discount and if a customer pays after the discount period expires, the extra revenue is posted to an account called “Sales Discounts Forfeited” or something similar.

Here is a comparative chart of accounts for Sales Revenue (gross method) for the two methods:

Note that they are the same.

As you’ll see in the following sections, there is only one difference between the two periodic and perpetual systems when it comes to recording sales: under the periodic system, we record the sale only and under the perpetual system, we record both the sale and the cost of goods sold so two entries are made instead of one.