The periodic inventory system is a method of accounting for inventory that involves taking physical counts of inventory at regular intervals and updating the inventory accounts accordingly. In this method, periodic inventory system journal entries are made to record the purchase, sale, and ending inventory balances.
The journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting under a periodic system.
In each case the periodic inventory journal entries show the debit and credit account together with a brief narrative. For a fuller explanation of journal entries, view our examples section.
Typical Periodic Inventory System Journal Entries
Purchase goods from a supplier using periodic system journal entries
| Account |
Debit |
Credit |
| Purchases |
XXX |
|
| Accounts payable |
|
XXX |
Record a supplier purchase cash settlement discount
| Account |
Debit |
Credit |
| Accounts payable |
XXX |
|
| Purchase discounts |
|
XXX |
| Cash |
|
XXX |
To account for freight costs (shipping point)
| Account |
Debit |
Credit |
| Freight-In |
XXX |
|
| Accounts payable |
|
XXX |
Record a purchase return to a supplier using periodic system journal entries
| Account |
Debit |
Credit |
| Accounts payable |
XXX |
|
| Purchase returns and allowances |
|
XXX |
Account for the sale of goods to a customer using periodic inventory journal entries
| Account |
Debit |
Credit |
| Accounts receivable |
XXX |
|
| Sales |
|
XXX |
To record a sales return from a customer using periodic inventory journal entries
| Account |
Debit |
Credit |
| Sales returns |
XXX |
|
| Accounts receivable |
|
XXX |
Record a customer sale cash settlement discount
| Account |
Debit |
Credit |
| Cash |
XXX |
|
| Sales discount |
XXX |
|
| Accounts receivable |
|
XXX |
To record a physical inventory count shortage
| Account |
Debit |
Credit |
| Loss on inventory write down |
XXX |
|
| Inventory |
|
XXX |
To record end of period journal entries using periodic system
| Account |
Debit |
Credit |
| Cost of goods sold |
XXX |
|
| Inventory (Beginning) |
|
XXX |
| Cost of goods sold |
|
XXX |
| Inventory (Ending) |
XXX |
|
Periodic vs Perpetual Inventory System Journal Entries
This reference guide is for the periodic inventory system, if the business is using a perpetual inventory system the journal entries are different and can be seen in our perpetual inventory system journal entries reference guide.
The periodic vs perpetual inventory journal entries diagram used in this tutorial is available for download in PDF format by following the link below.
Conclusion
These are the basic journal entries that would be made under the periodic inventory system. It is important to realize that this system requires regular physical counts of inventory to ensure that the inventory accounts are accurate.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.
