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| LO7 – Explain and identify the entries for purchase and sales transactions in a periodic inventory system. |
The perpetual inventory system maintains a continuous, real-time balance in both Merchandize Inventory, a balance sheet account, and Cost of Goods Sold, an income statement account. As a result, the Merchandize inventory general ledger account balance should always equal the value of physical inventory on hand at any point in time. Additionally, the Cost of goods sold general ledger account balance should always equal the total cost of merchandize inventory sold for the accounting period. The accounts should perpetually agree; hence the name. An alternate system is considered below, called the periodic inventory system.
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