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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.