 In this presentation we will record the purchase and sale of inventory in accordance with a periodic inventory system rather than a perpetual inventory system. We're going to have our data over here that we will be recording. We will be posting it here to the general journal. We're not going to be posting it to a general ledger but instead a nice little worksheet here the worksheet helping us when there's only a few transactions to see exactly what will happen very quickly. So we'll post this quickly here. We'll have the beginning trial balance, our adjustments and then we'll see what is happening as we go. We are having a trial balance of just the assets up top. It's going to be more of a shortened trial balance using just those accounts that we need but being able to see this balancing process being able to see something starting in balance and finishing in balance after each transaction. We'll have the green accounts being the asset accounts, the orange accounts the liability, the light to blue, the equity accounts and then the dark blue is going to be the income accounts of revenue and expense. We'll be representing the debits and credits over here with both a debit and credit column and also making the credits a bracketed number which will be negative numbers for Excel. We'll explain why to do this as we go. Over here we're going to have just one column representing debits and credits, debits being positive or non-bracketed numbers, credits being negative or bracketed numbers. If we then add those two up the debits minus the credits will equal zero. So our balancing process will be represented by these green zeros here showing that the debits minus the credits will equal zero. This 100,000 is our net income at this point. We have revenue or sales 100,000 no expenses. That's what we're starting off with. So let's go ahead and post these. We're going to record these and post these transactions. First one on one will be purchase merchandise on account. So whenever it says on account that means we're going to not be paying cash for it. Some books might say on credit on account often use to try to not confuse debits and credits with basically an on account terminology. So we're going to purchase merchandise. So first I would ask is cash affected? We're going to say no because we purchased it on account and that means we paid it with typically accounts payable but then I would usually think of what did we get because it might be easier to know what the debit and credit is. What we got is merchandise inventory. It has a debit balance. We need to make it go up. So we're going to do the same thing to it, which in this case will be another debit. So I'm going to copy merchandise inventory. I'm in cell H7. I'm just going to right click on H7 and copy and then we're going to put that up top. We could type it in here but copying and pasting a little faster. We'll right click and paste 123 here. The amount's going to be for that 15,000. We're going to credit 15,000 as well. Now I'm going to do that. I'm going to put a negative number here. We could just type in negative 15,000. We're going to need a negative in order to use the formulas. So you could type that in there once you select enter. It will put the brackets around it. You don't need to type in the brackets. We just need to type in this amount here and it'll format once we select enter. We can also use a little formula. So I just deleted that. We could use a little formula and it's going to equal this cell obviously but I want to flip the sign. So instead of sitting equals I'm going to say negative of that cell and that'll flip the sign. So here we have the other 15. Now we just need to know what account will be for that credit of the 15 and of course it is accounts payable. Now we already know that we're going to credit it. That's the beauty of thinking about what we received first because it might be easier to know that this goes up. If we think about it, does it make sense that we credit accounts payable? Accounts payable has a credit balance. The bad thing is going up. We owe more money. Therefore we're going to do the same thing to it to make it go up which is a credit. So it's good practice at least at the start to double check that just mentally all the time. Then we're going to right click accounts payable. We're going to copy it. I'm going to paste that here in D6. Right click and paste 123. Then we're going to indent the cell. So I'm going to go up to the home tab. I'm going to go to the alignment and increase the indenting. You don't have to do to do this but the formatting could help a little bit. If the formatting is blocking for some reason, you can't do that. Just double click this item and hit the space bar three times and that'll get you there as well. Now we're going to post this out. So here's the first transaction merchandise inventory. Here it is here. We're going to post it to this middle column so that we can see what we started with, what will happen, what we end with. So in J7 we're going to say this equals we're going to point to that 15,000 bringing this 10,000 up in the debit direction to 25,000. Next, we're going to post out this accounts payable. So it's accounts payable. Here it is the accounts payable on our trial balance. We're going to be here in the middle column. So we are in cell J8. So we're in J8. We're going to say equals. We're going to point to that 15. This is a credit. That's a credit. They're the same thing. So this is going to go up in the credit direction from 6,500 to 21,500. Next item we're going to have is going and now note we're going to stay in balance here too. You can just double check green zeros here, green zeros here and no effect on net income. Both of these accounts are balance sheet accounts. We haven't done anything to the income statement accounts revenue or expenses, even though we purchased inventory. We will do that when we make the sale posting it to cost of goods sold. So now we're going to go to the next component, which is going to be on one three. So I'm going to skip a line. We're going to type in one three on cell C8. And this one is a sale 2800. So we're going to make a sale. So we're going to assume the sales are on account here. So we're not going to get cash. We're going to say it's on account. So we have the sale on account. We have the therefore what we got is accounts receivable. So accounts receivable is an IOU that we're going to receive. We're going to say it has a debit balance. We got more of it. People owe us more money. Therefore it's going to go up. We're going to do the same thing to it, which is another debit. So we're going to copy the accounts receivable. We're going to put here in D8, right click, paste 123. The amount then is going to be 2800. We're going to credit something for 2800 as well. So I'm going to do that with the same type of formula. I'm going to put a negative instead of an equals point to that 2800. It'll take that cell, flip the sign to the credit of 2800. Then the credit account that we're going to post this to is going to be sales. That's our income account. We're making sales. We're earning revenue. We're going to credit that. We already know that we're going to credit it because we debited the accounts receivable. But if we double check it, then we can say this is a credit. We need to make it go up because sales always goes up and we do so by doing the same thing, which is another credit. So it does make sense that we accredited it. I'm going to copy the sales, right click and copy. We're going to put that in D9, right click and paste 123. Then we're going to indent this going to the home tab, alignment, increase the indenting, and there's our journal entry. Now note that because we're on a periodic system, we're not going to worry about the cost. This 40% markup, not something we're going to worry about right now. We are going to just record the sale side. Remember, this is going to happen typically if we don't have a very sophisticated system. We don't want to have to worry about the cost. The sticker price shows us what the sales price is, doesn't show us what the cost is, and therefore it might be a system that would be easier for us to just record the sales and then count the inventory at the end in order to record the cost of goods sold, the reduction of the inventory, and the related cost of that inventory being used. So we're going to post this out. Here's the accounts receivable. We're going to go up top to J6. So we're in J6. There's 6,000 already in it. We're going to increase it by this debit. So within J6, we're going to say this equals and point to that 2,800. The 6,000 plus the 2,800 gives us the 8,800. Next, we'll record the sales side. So here's the sales here. Here it is on our chart of accounts. It's in order as its liability equity than the income expense account starting with the revenue of sales. We'll be over here in J10 where we will say equals and point to this credit. This is a credit. That's a credit. Those are the same thing. It's going to make this go up, put us back in balance, bring net income up. So there we have that. So net income is going up now. Now note, this is a little deceiving at this point with the periodic system because it went up by 2,800, but we didn't record the cost. So this isn't the true net income until we get to the end of the time period, count the inventory, record the cost of goods sold. Next, we're going to go to 15 where it says we purchased merchandise on account once again. So we're going to purchase more merchandise. And therefore, I would say we got it on account. Is cash affected? No, it's not affected. What's the other count? What did we get then? We got merchandise inventory. Merchandise inventory has a debit balance. We're going to make it go up by doing the same thing to it, which is another debit. So we'll copy merchandise inventory. We're going to put that up top in D11, right click and paste 123. And that amount is going to be for the 7,000. We're going to credit something for 7,000. So once again, we could just type in a negative 7,000. I'm going to put a negative and point to that sale. So we're going to pick up that sale, reverse the sign. So there we have it. And then we just need to know what that account will be. It's not cash because we didn't pay cash. It's going to be instead increase the liability of accounts payable. Now we already know it's going to be a credit because we debited what we got. We debited the merchandise inventory. But if we double check it, we know that the payable has a credit balance. We know the bad thing is going up because we owe more money. And therefore we're going to do the same thing to it, which is another credit. So we're going to copy the accounts payable, right click and copy. We will put that in D12, right click and paste 123. We're going to indent now, go into the home tab, alignment, increase the indenting. And there we have that. Remember, you could just double click on it and hit the space bar three times and that'll work as well. We're going to post this out. So here's the merchandise inventory. Here it is up top. We're going to post it to our middle column and J7. But hey, there's something in there already. What do we do? We're going to double click on it, go to the end of it. So we're going to go to the end of it and just say plus. So now we're saying it has E5, which is this cell. Plus, we're going to say this cell E11. So E5 plus E11. It's going to bring this 25,000 up by 7,200, 32,000. Then we have the accounts payable, 7,000 credit. We're going to post it to the accounts payable here. Again, something's in our cell in J8. If we double click on it, we see that it's that 15. We want to go to the end of it and say plus. So whatever's in F6, which is that 15 plus this 7,000 in this transaction, this is a credit. That's a credit. It's going to make it go up from 21,500 by 7,200, 28,500. Next transaction, it's going to be on 18. It's going to say we paid for merchandise purchased on 11. So we purchased it up here and now we are paying for it. So when we did this up here, we debited the merchandise inventory and credit accounts payable. Now we're paying that off. So first question, is cash affected? We're going to say, yeah, we're going to pay it with cash. So cash is going to be going down. Cash has a debit balance. We're going to do the opposite thing to it, which is a credit. So I'm going to copy cash, going to right click and copy. We're going to put that on the bottom. So I'm going to put that on the bottom. I'm going to think about cash first, even though it's the credit, I'm not going to think about what's on top first. I'm not going to go in order of when we create the journal entry or what goes on top. I'm going to do whatever is easiest and typically thinking of cash is easiest. So we're going to right click and put that on the bottom. And the amount then is going to be for that 15,000. That's what we owe. That's what we will pay. Negative 15,000. Now we'll talk about discounts and terms in another presentation, but here we're just going to go in and record these transactions to show the flow of the process for a periodic system. We're going to debit something then. What will that debit be? 15,000. We could type it in there. Once again, I'm going to do a negative of this number. Now it's going to flip the sign again. This is a negative number. And if we flip it by taking the negative of it, it will flip it back to a positive number. Then we just need to know what this account will be. And we're paying cash not to get the inventory. We already got the inventory. We're paying it to pay off the payable. So this payable is what's being decreased. Note that it has a credit balance. Therefore, we're going to do the opposite thing to it, which is a debit. So we're going to double check that we got this debit correct. It is a debit. Does make sense that we're going to be debiting the accounts payable to do the opposite thing to it as it's normal credit balance in order to make it to go down. So we're going to copy the accounts payable, right clicking and copy. We're going to put that in D 14, right click and paste 123. We're going to indent the cash here. So we're going to click on the cash. We're going to go to the home tab alignment, increase the indentation. And there we have it. So now we're going to record this. Here's the accounts payable here. Here it is up top. We are going to record that in J eight. So within J eight, there's something there. So if we double click on it, we can see what is there. These two accounts payable accounts f six plus f 12. We're going to go to the end of it now and say plus and then point to this debit balance this time of the 15. So everything with the accounts payable is there. We want the 15 enter that brings the balance back down, puts us out of balance by 15. Other sides going to be going to cash. So here's the cash account in J five. We are just going to say equals, we're going to point to this credit of 15,000. That's a debit. That's a credit. Those are opposites going to make this go down, put us back in balance down here. So there we have it. Next transaction is going to be on one 10. So we're going to say 110. We're going to say we made a sale for 42,000. So another sale is happening here. So if we scroll back up top, we're going to say we made the sale on account. That's going to be the assumption we make. We make it on account. So we didn't get cash. We got instead and I owe you. We got the accounts receivable counts people has a debit balance. We need to make it go up. People owe us more money. Therefore we're going to do the same thing to it another debit. So we're going to copy the accounts payable right clicking and copying scrolling down. We're going to put that in B 17 right click and paste 123. The amount then will be 4,200. So we're going to credit something for 4,200 as well. We can put a negative of 4,200 or put a negative and point to this cell, taking that cell and flipping the sign. Then we're going to say what should that account be? What will the credit account be? We earned revenue. We made a sale. We earned revenue. Here is our revenue account, our sales account. It has a credit balance. We're going to do the same thing to it to make it go up. Note we already knew we're going to credit it because we debited accounts receivable, but it's good to double check it. We're going to say, all right, sales has a credit balance. It only goes up in the credit direction. Therefore we do the same thing to it another credit. So we're going to copy that right clicking and copying the sales scroll down, put that in D 18 right click and paste 123. Then we'll go up top to the home tab alignment increase the indenting. We could do that by double clicking and selecting the spacebar as well. Here's our accounts receivable. It has a debit balance. We're going to go ahead and record that now. So if we scroll back up, we're getting a little bit further down, but we could still see our transactions up top. We're going to scroll up. We're going to put that here in J six. So there's something there. So we're going to double click on that, go to the end of it, say plus and then point to this 7,000. I scroll down just a little and point to this. So this 4,200 the accounts receivable. If I scroll up just a little, it's going to say increase this account. This is debit. That's debit increasing the 8,800 by 4,200 to 13,000. That puts us out of balance here. We're then going to record the other side, the sales side to the sales account in cell J 10. So within cell J 10, we will double click, go to the end of it, say plus and point to that 4,200. This is a credit. That's a credit. Same thing going to make this account go up in the credit direction. So there we have this transaction that increased, of course, the net income. And these are the two that we're kind of focusing on here at this. This one here is the recording of a sale. And this one here obviously is also a recording of the sale. And what we didn't do on either of those is record the decrease in merchandise and the cost of goods sold, which we will do in a periodic system at the end after a physical count. Then we're going to say the next one is going to be on 1,2. It says receive customer payment for sale made on 1,3. So we've received a payment now. So here's the sale that we made up here. We got paid. So that means cash is affected. Cash is going up because we got more money. Cash has a debit balance. We're going to make it to go up by doing the same thing to it, which is another debit. So I'm going to copy the cash, right click and copy, scroll back down. We're going to put that on top in D 20, right click and paste 1,2,3. The amount is going to be that 2,800. So we're just going to type in 2,800. We'll then credit that same amount. So I'm going to say negative of that number. I'm just going to take that number and flip the sign, the 2,800. What then will we credit? Well, we're not going to credit sales because we already made the sale. What we're going to do is credit the accounts receivable. So here's the account showing that we are owed this money that we earned in the past. We are now getting paid. Note that we already know that we're going to credit it because we debit cash. But we also want to double check it. This is a debit balance account. If we get paid, it should go down because it means people don't owe us that money anymore. Therefore, we're going to do the opposite thing to it. In this case, a credit. So we're going to copy this accounts receivable, right click and copy. Scroll down and put that on D 21, right click and paste 1,2,3. Then we'll go to the home tab, alignment, increase the indenting and there we have it. Now we're going to post this out. So here's the cash and we're going to have to scroll up just a little bit. You can also make the screen smaller if you would like to not scroll around as much. But either way is good. I'm going to keep it large so we can see everything here. So I'm going to scroll up top. We're going to go to the cash here. We're going to go to this account of J5. There's something in it. So we'll double click on it, go to the end of it, and then say plus. And then I'm going to scroll down just a bit and point to that 2,800, the cash. So the cash is going into the cash account, debiting it, increasing the balance from 105,000 to 107,800, putting us out of balance here. If we scroll back down, here's the accounts receivable, the other side. If we go to accounts receivable, here it is here. We're going to post it to J6, the middle column, double clicking on it, going to the end of it, same plus. I'm going to scroll back down just a bit and I'm going to point to that 2,800. So here's, this is a debit balance account. We're crediting it, making it go down. So here we are back in balance with that transaction. So that's going to be it through one. So then we have the last thing and we're going to skip to the end and say, okay, now we are going to do our adjustment at the end of the time period for a periodic system. And so what we have done is we've recorded these two sales, but we haven't recorded the related merchandise going down and we haven't recorded the cost of goods sold. We're going to do a cost of goods sold calculation, a very important calculation in order to figure out what this cost of goods sold should be, as well as what the merchandise inventory should be. You're going to need this both in a perpetual system and a periodic system. So it's really important calculation to get used to. So we're going to calculate cost of goods sold. And that's going to start, it's always going to be the same. You want to memorize the formula. We're going to start with beginning inventory. So we'll have beginning inventory. Now I'm going to say that we're going to start looking at units versus unit cost, unit and unit cost, I should say not versus and the total. But I'm going to introduce this idea now and we'll get more into it in a later course when we talk about the different methods, LIFO, FIFO and average cost. But for now, we'll just keep in mind that there is a difference, of course, with what we report on the financial statements, dollars and the physical count, which is going to be in units. And we're going to have to do that conversion similar to like a exchange type of conversion, any kind of unit of major conversion similarity. So we're going to say then the beginning total, I'm going to start with the totals here. It started with 10,000 in merchandise inventory. That's what we had at the beginning of the time period. So we're going to scroll back down here. And we're going to say that we started with 10,000. And then we're going to add to it what we purchased. So we had purchases. Now the purchases if we scroll back up here are going to be this item. Make that a different color we purchased here. And we purchased here here. And note the dollar amount is what it is. That's what we're going to pay for it. So it's not like an estimate at this point in time the purchases are what they are. So we purchased $15,000 worth and $7,000 worth. So if we go back over here, I could say this equals this 15,000 plus that 7,000. So 15,000 plus 7,000, or the 22, you could just type that in there, or you can use that formula. And that gives us if we if we add those two up, that's the goods available for sale. That's what we had that we could sell. So if I sum this up, I'm going to use the sum function, obviously, I'm just going to add these two up 10 plus the 22 is the 32. We're going to use the most important function, the sum function equals sum double clicking the sum function highlighting those two amounts. And if we say enter, we get the 32,000. So if we think about that, that means that that's what we could have sold from a dollar standpoint of inventory. That's what we had at any given point. Now note that during the month, we don't know what we had at any point within the month on the system. But we do know that throughout the entire month, we had in our possession at some points along the way 32,000 dollars worth of inventory that we could have sold. So if we sold all the inventory that we had physically there and measured in dollars, then we could have sold 32,000. Now what we're going to do is we're going to see well what was left at the end of the time period. And if we subtract what was left from what we had that we could have sold, then we'll get the cost of what we did so assuming there's no other things happening like theft or whatnot. So we're going to say now the ending inventory is here. Now this is where we're going to introduce units. We're going to say if we count the inventory, obviously, we're going to have to count units. So we're going to say ending inventory. And units is this 10 units. Now we'll talk about the conversion more later. But now we're just going to say the conversions all easy straight conversion all 10 units cost 2700. So they all cost the same. And therefore, if we multiply that out using a formula, we're going to say equals and say this number. Actually, I got that backwards. It should be 2700 units. And we have $10 per unit. So this is the number of units we're left with. And this is going to be the cost per unit. Now if we multiply that out, we're going to say that in cell K 22 equals, I'm going to use the equals to do this. Obviously, you can you can calculate this in a calculator in your head. It's going to be the 2007 just going to point to that times this $10 per unit. That gives us the 27000. So that's the 27000. Now this is what we had available. That's what we have left. So if we subtract those two, the 32 minus the 27 going to do that with a formula equals this 32000 minus going to point to this 27000. So K 21 minus K 22 equals 5000. So this is how many how many dollars worth we have left. That's going to be our cost of goods sold. So that this is in dollars here. Now we could do the same thing. Notice we if we look in units, and we kind of work backwards, we would say, well, if they all cost $10, if this is universal, we can say, well, if they're all $10 here, then we know that if we had $10,000 worth and there's $10 per unit equals 10,000 divided by 10 will give us the 1000. There must have been starting then 1000 units, which cost $10. And then we purchase 22,000 equals 22,000 divided by 10. How many units did we purchase? We purchased 2200. Now I could take the 32 divided by 10, or we can add these two up as we did here. So we could say equals the sum of this and this. And that'll say 3200, 3200 times 10 is 32,000. We had available. And then we could say this divided by 10, or we could subtract these two out as we did here to get the unit amount equals the 3200 minus the 2700. So it's important to note that you can do this cost a good total calculation in terms of units and in terms of total dollars amount and not to get those two things mixed up. It's beginning inventory plus purchases gives us what's available minus ending inventory. We can do that from a unit counting standpoint. How many units do we have? And then we can do that from a total standpoint. If all the units are the same, then then it all works out nicely. If the costs are different from for some reason, as we'll take a look at different methods later, it gets a little bit more complex. So this is going to be our cost of goods sold. That's going to be our final journal entry that we're going to record the cost of goods sold and the reduction in inventory. Once we're done, we should have this and cost of goods sold and our ending inventory should be that. So that's what we'll do. And we'll say that cost of goods sold is here. It's an expensive, it might be easier to think about the inventory. Inventory needs to be going down because we sold inventory. Inventory has a debit balance. So we're going to do the opposite thing to it, a credit. So I'm going to copy the merchandise inventory, right click and copy. And we're going to put that on the bottom because it's going to be a credit. So I'm in D24, right click and paste 123. The amount is going to be for 5000. I'm going to put a negative 5000. And then we're going to debit something for 5000. Now you can get to that 5000 a few different ways. You can say, well, it's 5000 here. Or you can say, I need to make that 27,000. So if we take our calculator, obviously, we have the 32,000. That's basically what's available for sale. Mine is what we needed to be 27,000. And that's our 5000. So we're going to reduce it by that 5000. The other side is going to be going to cost of goods sold. Here's cost of goods sold. We're going to copy that, right click and copy. We're going to paste that here in cell D23, right click and paste 123. And again, I'm going to put negative of that number taking that number and flipping the sign. Then we'll indent this cell, go into the home tab alignment, increase the indenting. And there we have this. Now we're going to post this out. So here's cost of goods sold scrolling up. Here's cost of goods sold. We are in cell J13. So we'll say equals. We're going to point to this 5000 bringing this balance up and it's going to bring net income down. So there we have that next side inventory, scrolling up to inventory. Here's inventory. We're going to be here in J7 double clicking on J7, going to the end of it plus scroll down. And we're going to pick up that 5000 to credit. And so I'm going to scroll back up. Once we hit enter, it should bring this to 27, put us back in balance here. So here we have this time out to what we have on our worksheet. Now we've got the 27,000 here. We've got the 5000 here. So we are now adjusted this. Now this amount of net income should be proper at this point, meaning we increased it during this time period of the seven. And we decreased it by the five. We started with the 1100,000 just basically to show that the sales is going to have a credit balance and carry that forward. So we got this increase in by the seven. This is really what happened. It increased by the seven, it decreased by the five, the net change to income. You can see it started at 100 is an increase in 2000, which is the net change, which is the sales minus the cost of goods sold.