Periodic Inventory System Assignment | Top Universities

1. Define the meaning of Inventory or Stock as it is sometimes called. AASB102 states that inventory is to be recorded at the lower of cost and net realizable value. What does this mean? Inventories are assets that are held for sale in the ordinary course of business, are in the process of production for sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of service. When the inventory is recorded at the lower of cost and net realizable value, this means that the value of the inventory is to be either understated or recorded only at the actual value it would be sold for so that the stock value is not overstated as this can cause issues with cashflow prediction.

2. Explain how a periodic inventory system records the movement of inventory during an accounting period. Name the accounts used if possible. A periodic inventory system records the movement of inventory during an accounting period by recording purchases of inventory in a Purchases account at cost price instead of an Inventory control account. When inventory is sold, it is recorded in the Sales account at selling price. There is no entry to the Cost of goods sold account at the time of sale. 3. Explain how a perpetual inventory system records the changes in inventory during an accounting period. Name the accounts used if possible. Get Accounting Homework Help Today.