Perpetual Inventory - Purchasing Summary definitions Flashcards
Perpetual Inventory - Purchasing Summary definitions
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Perpetual Inventory System A method where inventory records are updated continuously for each purchase and sale, providing real-time inventory balances. Inventory Account A ledger account tracking the value of goods held for sale, reflecting increases and decreases from purchases and sales. Beginning Balance The amount of inventory on hand at the start of an accounting period, serving as the starting point for calculations. Purchases Additions to inventory during a period, representing goods acquired for resale and increasing the inventory account. Purchase Discounts Reductions in the cost of inventory received for early payment to suppliers, decreasing the inventory account. Purchase Returns and Allowances Deductions from inventory for goods returned to suppliers or price reductions for defective items, lowering inventory value. Cost of Goods Sold The expense representing the cost of inventory sold during a period, reducing the inventory account. Ending Balance The final value of inventory remaining at the end of a period after accounting for all additions and subtractions. T-Account A visual tool used to represent increases (debits) and decreases (credits) in an account, aiding in inventory calculations. Debits Entries on the left side of a T-account, typically representing increases to asset accounts like inventory. Credits Entries on the right side of a T-account, usually indicating decreases to asset accounts such as inventory. Accounts Payable A liability account for amounts owed to suppliers, not directly affecting inventory calculations in this context. Base Equation A formula used to determine ending inventory: Beginning Balance + Purchases - (Discounts + Returns + COGS) = Ending Balance.
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