The periodic inventory system is mainly used by business that sell
relatively inexpensive merchandise and that are not yet using any
computerized scanning systems method in analyzing the cost of good sold
of the merchandise. A characteristic of the periodic inventory system is
that no entries are made to the inventory account as the merchandise
was bought and later to be sold.
When goods are purchased, separate
account should be made, (ex : purchases, purchases discounts, purchases
allowances and returns, and transportation in) is used to accumulate
data on the net cost of the purchases only its accounting period.
However, when the inventory is counted, transaction entries will be made
to the inventory account to establish its proper accounting balance.
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