{"id":197,"date":"2024-09-06T16:47:24","date_gmt":"2024-09-06T16:47:24","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/cost-of-goods-sold-periodic-system\/"},"modified":"2024-09-11T19:10:51","modified_gmt":"2024-09-11T19:10:51","slug":"cost-of-goods-sold-periodic-system","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/cost-of-goods-sold-periodic-system\/","title":{"raw":"Cost of Goods Sold: Periodic System","rendered":"Cost of Goods Sold: Periodic System"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Compute the cost of goods sold under a periodic system and create journal entries<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nWhat we have now learned is that using the periodic inventory system the cost of goods sold (COGS) is computed as follows:\r\n<p style=\"padding-left: 30px;\"><strong>Beginning inventory + (Purchases, net of returns and allowances, and purchase discounts) + freight in \u2212 Ending inventory = Cost of goods sold<\/strong><\/p>\r\nWhich looks like this on an income statement:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>Geyer Co.\r\nIncome Statement (partial)\r\nFor the year ended December 31, 20XX<\/caption>\r\n<tbody>\r\n<tr>\r\n<th scope=\"row\">Sales Revenue, net<\/th>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$2,548,959<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"4\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cost of goods sold<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Merchandise inventory, January 1, 20XX<\/th>\r\n<td><\/td>\r\n<td class=\"r\">$457,897<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Purchases<\/th>\r\n<td class=\"r\">1,532,444<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Less purchase discounts<\/th>\r\n<td class=\"r\">20,222<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Less returns and allowances<\/th>\r\n<td class=\"r\">56,000<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Purchases, net<\/th>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">1,456,222<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Plus Freight in<\/th>\r\n<td><\/td>\r\n<td class=\"r\">66,231<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Goods available for sale<\/th>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$1,980,350<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 Less merchandise inventory, December 31, 20XX<\/th>\r\n<td><\/td>\r\n<td class=\"r\">238,687<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 \u00a0 \u00a0 \u00a0 Cost of goods sold<\/th>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">1,741,663<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Gross profit<\/th>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$807,296<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"4\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Gross profit %<\/th>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>31.67%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nAfter the financial statements have been prepared at the end of the accounting period, as part of the closing process, we zero out the purchase accounts and post the difference to Inventory. If we did our work correctly, it would look like this (all other accounts are omitted for clarity):\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133630\/Cost-of-Goods-Sold-Periodic-System11.png\"><img class=\"alignnone size-full wp-image-5585\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133630\/Cost-of-Goods-Sold-Periodic-System11.png\" alt=\"Two T accounts side by side. On the left is an inventory chart. There is an ending balance carried over on the debit side of 457,897 dollars. There is a credit entry of 220,009 dollars. There is a debit total of 237,888 dollars. On the right is an income summary. There is a debit entry of 1,745,462 dollars. On the credit side there is a note stating 'Will be closed to capital'. The debit total is represented as a dash.\" width=\"803\" height=\"335\" \/><\/a>\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133633\/Cost-of-Goods-Sold-Periodic-System21.png\"><img class=\"alignnone size-full wp-image-5586\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133633\/Cost-of-Goods-Sold-Periodic-System21.png\" alt=\"Two T accounts side by side. On the left is a purchases chart. There is an ending balance carried over on the debit side of 1,532,444 dollars. There is a credit entry of 1,532,444 dollars. On the right is a purchase returns and allowances chart. There is an ending balance carried over on the credit side of 56,000 dollars. There is a debit entry of 56,000 dollars. The credit total is represented as a dash. \" width=\"910\" height=\"302\" \/><\/a>\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133637\/Cost-of-Goods-Sold-Periodic-System31.png\"><img class=\"alignnone size-full wp-image-5587\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133637\/Cost-of-Goods-Sold-Periodic-System31.png\" alt=\"Two T accounts side by side. On the left is a freight in chart. There is an ending balance carried over on the debit side of 66,231 dollars. There is a credit entry of 66,231 dollars. The debit total is represented as a dash. On the right is a purchase discounts chart. There is an ending balance carried over on the credit side of 20,222 dollars. There is a debit entry of 20,222 dollars. The credit total is represented as a dash.\" width=\"927\" height=\"274\" \/><\/a>\r\n\r\nNotice the final journal entry, and in fact, the only journal entry to Merchandise Inventory is an adjustment to bring beginning inventory to the right ending balance.\r\n\r\nIn the next module, we\u2019ll delve into the process of determining the dollar value of ending inventory. First, let\u2019s see how the periodic system evolved into the more commonly used perpetual system, and how that system is both similar to and different than the periodic system.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25170[\/ohm2_question]\r\n[ohm_question hide_question_numbers=1]204626[\/ohm_question][ohm_question hide_question_numbers=1]204627[\/ohm_question]\r\n\r\n<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Compute the cost of goods sold under a periodic system and create journal entries<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>What we have now learned is that using the periodic inventory system the cost of goods sold (COGS) is computed as follows:<\/p>\n<p style=\"padding-left: 30px;\"><strong>Beginning inventory + (Purchases, net of returns and allowances, and purchase discounts) + freight in \u2212 Ending inventory = Cost of goods sold<\/strong><\/p>\n<p>Which looks like this on an income statement:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>Geyer Co.<br \/>\nIncome Statement (partial)<br \/>\nFor the year ended December 31, 20XX<\/caption>\n<tbody>\n<tr>\n<th scope=\"row\">Sales Revenue, net<\/th>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$2,548,959<\/td>\n<\/tr>\n<tr>\n<td colspan=\"4\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cost of goods sold<\/strong><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Merchandise inventory, January 1, 20XX<\/th>\n<td><\/td>\n<td class=\"r\">$457,897<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Purchases<\/th>\n<td class=\"r\">1,532,444<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Less purchase discounts<\/th>\n<td class=\"r\">20,222<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Less returns and allowances<\/th>\n<td class=\"r\">56,000<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Purchases, net<\/th>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">1,456,222<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Plus Freight in<\/th>\n<td><\/td>\n<td class=\"r\">66,231<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Goods available for sale<\/th>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$1,980,350<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 Less merchandise inventory, December 31, 20XX<\/th>\n<td><\/td>\n<td class=\"r\">238,687<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 \u00a0 \u00a0 \u00a0 Cost of goods sold<\/th>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">1,741,663<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Gross profit<\/th>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$807,296<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"4\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Gross profit %<\/th>\n<td><\/td>\n<td><\/td>\n<td>31.67%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>After the financial statements have been prepared at the end of the accounting period, as part of the closing process, we zero out the purchase accounts and post the difference to Inventory. If we did our work correctly, it would look like this (all other accounts are omitted for clarity):<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133630\/Cost-of-Goods-Sold-Periodic-System11.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5585\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133630\/Cost-of-Goods-Sold-Periodic-System11.png\" alt=\"Two T accounts side by side. On the left is an inventory chart. There is an ending balance carried over on the debit side of 457,897 dollars. There is a credit entry of 220,009 dollars. There is a debit total of 237,888 dollars. On the right is an income summary. There is a debit entry of 1,745,462 dollars. On the credit side there is a note stating 'Will be closed to capital'. The debit total is represented as a dash.\" width=\"803\" height=\"335\" \/><\/a><\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133633\/Cost-of-Goods-Sold-Periodic-System21.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5586\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133633\/Cost-of-Goods-Sold-Periodic-System21.png\" alt=\"Two T accounts side by side. On the left is a purchases chart. There is an ending balance carried over on the debit side of 1,532,444 dollars. There is a credit entry of 1,532,444 dollars. On the right is a purchase returns and allowances chart. There is an ending balance carried over on the credit side of 56,000 dollars. There is a debit entry of 56,000 dollars. The credit total is represented as a dash.\" width=\"910\" height=\"302\" \/><\/a><\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133637\/Cost-of-Goods-Sold-Periodic-System31.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5587\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133637\/Cost-of-Goods-Sold-Periodic-System31.png\" alt=\"Two T accounts side by side. On the left is a freight in chart. There is an ending balance carried over on the debit side of 66,231 dollars. There is a credit entry of 66,231 dollars. The debit total is represented as a dash. On the right is a purchase discounts chart. There is an ending balance carried over on the credit side of 20,222 dollars. There is a debit entry of 20,222 dollars. The credit total is represented as a dash.\" width=\"927\" height=\"274\" \/><\/a><\/p>\n<p>Notice the final journal entry, and in fact, the only journal entry to Merchandise Inventory is an adjustment to bring beginning inventory to the right ending balance.<\/p>\n<p>In the next module, we\u2019ll delve into the process of determining the dollar value of ending inventory. First, let\u2019s see how the periodic system evolved into the more commonly used perpetual system, and how that system is both similar to and different than the periodic system.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25170\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25170&theme=lumen&iframe_resize_id=ohm25170&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><br \/>\n<iframe loading=\"lazy\" id=\"ohm204626\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=204626&theme=lumen&iframe_resize_id=ohm204626&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><iframe loading=\"lazy\" id=\"ohm204627\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=204627&theme=lumen&iframe_resize_id=ohm204627&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/section>\n","protected":false},"author":6,"menu_order":11,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Cost of Goods Sold: Periodic System\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":186,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Cost of Goods Sold: Periodic System","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/197"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":3,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/197\/revisions"}],"predecessor-version":[{"id":926,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/197\/revisions\/926"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/186"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/197\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=197"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=197"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=197"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=197"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}