Question

The Hamlet Company uses the periodic inventory system. Information for the current year is as follows:Sales $ 2,650,000Beginning inventory 680,000Purchases 1,200,000Purchase returns 12,000Ending inventory 740,000Hamlet's cost of goods sold for the current year is:

Answer 1

$1128000.

Net purchases=Purchases-Purchases returns

=(1,200,000-12000)=$1188000

Cost of goods sold=Beginning inventory+Net purchases-Ending inventory

=680,000+1188000-740,000

=$1128000.

A periodic inventory system is a form of inventory valuation where the inventory account is updated at the end of an accounting period rather than after every sale and purchase. The method allows a business to track its beginning inventory and ending inventory within an accounting period.

A perpetual inventory system inventory updates purchase and sales records constantly, particularly impacting Merchandise Inventory and the Cost of Goods Sold. A periodic inventory system only records updates to inventory and costs of sales at scheduled times throughout the year, not constantly.

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