![]() ![]() Freight-in exampleįor example, on October 1, the company ABC makes a cash purchase of the merchandise goods that cost $20,000 from one of its suppliers. This means that the company needs to allocate this cost into the different types of merchandise inventory that it belongs to as the company usually has different types of merchandise inventory in its account. In this journal entry, the freight-in cost is included in the inventory cost and only be transferred later to the cost of goods sold when the inventory is sold. Account Debit Credit Inventory $$$ Cash $$$ Likewise, the company needs to make the freight-in journal entry in this case, by debiting the freight-in cost into the inventory account and crediting the cash account. Perpetual inventory systemĪs mentioned, under the perpetual inventory system, the company needs to record the freight-in cost as a part of the inventory cost. In this case, the freight-in cost will be shown as an additional amount to the net purchase (purchase – purchase return and allowance – purchase discount) of the merchandise inventory when the company calculates the cost of goods sold. Similar to the purchase account, the freight-in account is a temporary account that will be cleared at the end of the accounting period when the company makes the cost of goods calculation. Account Debit Credit Freight-in $$$ Cash $$$ Under the periodic inventory system, the company can make the freight-in journal entry by debiting the freight-in account and crediting the cash account. Freight-in journal entry Periodic inventory system This is due to the cost of inventory includes all costs necessary to acquire the inventory and the freight-in cost falls into this category as the freight is necessary for the goods to be delivered to the company as a buyer. On the other hand, the company needs to record the freight-in cost as a part of the cost of the inventory purchased under the perpetual inventory system. After all, under the periodic inventory system, the inventory account and cost of goods sold account will only be updated when the company performs the physical count of the inventory (usually at the end of the period). Journal entry for freight-in under the periodic inventory system is a bit easier as the company just needs to record this cost in the freight-in account or transportation cost account as the net cost of purchases. Likewise, the company needs to make journal entry for freight-in by recognizing this cost as a part of merchandise inventory if it uses the perpetual inventory system or recognizing it as a part of net cost of purchases if the company uses the periodic inventory system. Some accountants will add or subtract a value using an adjustment entry (journal voucher), however if all receipts (purchases) and shipments (invoices) are captured as transactions, this would never need to occur.Freight-in cost incurs when the company as the buyer needs to pay for the transportation of goods that it purchases from the suppliers. ![]() The perpetual inventory formula is very straightforward.īeginning Inventory (usually from a physical count) + receipts - shipments = Ending Inventory. ![]() Perpetual inventory systems can still be vulnerable to errors due to overstatements ( phantom inventory) or understatements ( missing inventory) that can occur as a result of theft, breakage, scanning errors or untracked inventory movements, leading to systematic errors in replenishment. This has been facilitated by bar coding and lately radio frequency identification ( RFID) labeling which allows computer systems to quickly read and process inventory information as part of transaction processing. Starting in the 1970s digital computers made possible the ability to implement a perpetual inventory system. In earlier periods, non-continuous, or periodic inventory systems were more prevalent. In this case, book inventory would be exactly the same as, or almost the same, as the real inventory. Generally this is accomplished by connecting the inventory system with order entry and in retail the point of sale system. In business and accounting/ accountancy, perpetual inventory system or continuous inventory system describes systems of inventory where information on inventory quantity and availability is updated on a continuous/real-time basis as a function of doing business. ( Learn how and when to remove this template message) ( June 2022) ( Learn how and when to remove this template message) Please help to improve this article by introducing more precise citations. This article includes a list of general references, but it lacks sufficient corresponding inline citations.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |