Group members for the project are Umer Saeed, Bilal Arif, Rana Zeeshan Ali Khan, Mirza Ali Hafeez, and Usman Saeed. The document discusses inventory systems, including periodic and perpetual systems. It provides details on calculating inventory value under each system and examples of journal entries for purchases, sales, and returns under both periodic and perpetual inventory methods.

2. Group members
Umer Saeed 2014-ag-8897
Bilal Arif 2014-ag-8982
Rana Zeeshan Ali Khan2014-ag-8979
Mirza Ali Hafeez 2014-ag-8981
Usman Saeed 2014-ag-9387

3. Financial Accounting
Inventory Systems

4. Inventory
• Inventory is an asset that
owned by the business for the
purpose of selling to the
customer or consumer.

5. Types of inventory system
It has two types which are following
► Periodic System
► Perpetual System

6. Periodic System
In the periodic inventory system the varieties
unlimited.
Ending inventory is calculated at the end of specific
period and normally one year.
Periodic inventory system useful for inexpensive
goods where need for accurately tracking inventory
does not exist.

7. Perpetual System
• In the periodic inventory system the
varieties limited.
• Ending inventory is calculated after each
transaction in store ledger card.
• Perpetual inventory system provides
detailed record of inventory throughout
year and hence, used by most companies.
• Separate store ledger
• Card is used for each type of material

8. Valuation of inventory
First In First Out (FIFO)
- first items purchase will be sold first.
Last In First Out (LIFO)
- last item purchase will be sold first.
Weighted Average (WA)
- make an average cost per unit purchase
of the goods.

9. Cost of Goods Sold – Periodic System
______________________________________________
__________
Opening Inventory xxxx
Add:
Purchase xxxxx
Carriage Inward xxxxx
Import Duty xxxxx
xxxxx
(-) Return Outward (xxxx) xxxxx
Cost of Goods Available for sale xxxxx
(-) Closing Stock (xxxx)
Cost of Good Sold xxxxxx

10. Income Statement - Perpetual System
Sales xxx
Less: Cost of Good Sold xx
Less: Inventory Shortage xx xx
Gross Profit xxx

11. Journal Entries for Purchasing of Goods
Transaction Periodic Perpetual
Purchase goods on
credit/cash
Dr Purchase
Cr Trade Creditor/ Cash
Dr Stock
Cr Trade Creditor /Cash
Return Outward/ purchase
return
Dr Trade Creditor
Cr Return Outward/
purchase return
Dr Trade Creditor
Cr Stock
Carriage Inward/ freight-in Dr Carriage Inward
Cr Cash
Dr Stock
Cr Cash
Payment to supplier/ creditor Dr Trade Creditor
Cr Cash
Dr Trade Creditor
Cr Cash

12. Journal Entries for Sales of Goods
Transactions Periodic Perpetual
Sales Goods on Credit /
Cash
Dr Debtor/Cash
Cr Sales
Dr Debtor / Cash
Cr Sales
No entry to be made Dr Cost of Goods Sold
Cr Stock
Return Inward/ sales
return
Dr Return Inward
Cr Debtor
Dr Return Inward
Cr Debtor
No entry to be made Dr Stock
Cr Cost of Good
Sold
Collections Dr Cash
Dr Sales Discount
Cr Debtor
Dr Cash
Dr Sales Discount
Cr Debtor
If there is inventory
shortage
No record to be made
because it directly
charge to COGS
Dr Inventory Shortage
expense
Cr Inventory