How to Journalize Transactions Using a Perpetual Inventory System

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When you are accounting for inventory, you can use two general systems to journalize the transactions for financial recording. The perpetual inventory system takes information on inventory quantities and availability and updates the information on a continuous basis over the period. This is usually achieved by connecting an inventory system with an order entry system or a point of sale system in retail. The other common inventory system is the periodic inventory system, which differs from the perpetual inventory system by only updating the inventory system on a periodic basis, usually at the end of each accounting year. A perpetual inventory system requires different journal entries compared with a periodic inventory system.

Calculate the four components to begin the journalizing process. You need to calculate the amounts for your beginning inventory during the period, your total purchases, your total sales and your ending inventory. To arrive at these amounts, multiply the amount of units bought by the unit price.

Access your accounting software where you enter your journal entries or create a spreadsheet with four columns. One column will display the dates of the transactions, another column will list the account names and the last two columns will represent the “debit” and “credit” columns for the general journal.

Write the date in the appropriate column and the beginning inventory amount for the specified number of units and price. No debit or credit entries are required at this point.

Enter your total purchases in the general journal as your next transaction. Write the date and the “Inventory” account name under the account column. Write the “Accounts Payable” name underneath it. Enter the amount of purchases you made for the period in both the debit and credit columns. If you paid cash for parts of these purchases, break the credit entries up into the “Accounts Payable” and “Cash” accounts for the appropriate amounts.

Enter your total sales in the general journal as the next transaction. Write the appropriate date and the “Sales” or “Revenue” account name under the account column. Write “Accounts Receivable” and “Cash” if you received any payment from customers in the form of cash. Journalize the amount by writing the amount of total sales in both the debit and credit columns.

Enter the ending inventory amount underneath the purchases and sales journal entries with the appropriate date. No debit or credit entries are needed. The perpetual inventory adjustment will adjust the inventory to the physical count, closes out any purchase accounts, and runs any difference through the cost of goods sold. Alternatively, a periodic system records the inventory as a debit and credits the cost of goods sold and purchases to calculate the periodic inventory for the ending period.

Tips & Warnings

  • Journal entries for debit and credit columns always must balance. Add the debit amounts and credit amounts after journalizing your transactions to ensure they equal the same amount.

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