4. Inventory Costing Under a Periodic System

What does it mean when a company uses a periodic inventory system?

Merchandise inventory account is updated at the end of each period to reflect purchases and sales.

In the periodic system, what are there lines for in the charts that are made to compute inventory cost and units?

There are only lines for dates for beginning inventory and dates where purchases happen.

Under what column is the amount purchased listed under?

Goods available for sale.

Review

This is different from the perpetual method for FIFO, LIFO, and Weighted Average where there is a line for the date a sale happens and the amount sold is put in the Cost of Goods Sold column.

Specific Identification is done the same for periodic and perpetual system.

When using the periodic system, what columns appear in the table for computing units and costs when using FIFO, LIFO, and Weighted Average?

Columns are Date, Goods Available for Sale, Cost of Goods Sold, and Ending Inventory instead of Date, Goods Purchased, Cost of Goods Sold, and Inventory Balance in the perpetual system.

The first four columns mentioned are the same as when using Specific Identification with the periodic system.

Review FIFO example under Inventory Costing Under a Periodic System. Compare this to how it is different with the perpetual system.

Review LIFO example under Inventory Costing Under a Periodic System. Compare this to how it is different with the perpetual system.

Review Weighted Average example under Inventory Costing Under a Periodic System. Compare this to how it is different with the perpetual system.

Is LIFO inventory often less or more than the inventory’s replacement cost and why?

LIFO inventory is often less than the inventory's replacement cost because LIFO inventory is valued using the inventory purchase costs.

Review

The financial statement effects of costing methods (rising costs, falling costs, and advantages) are the same 

Review Need-To-Know 6-7