The periodic inventory system is mainly used by business that sell relatively inexpensive merchandise and that are not yet using any computerized scanning systems method in analyzing the cost of good sold of the merchandise. A characteristic of the periodic inventory system is that no entries are made to the inventory account as the merchandise was bought and later to be sold.
When goods are purchased, separate account should be made, (ex : purchases, purchases discounts, purchases allowances and returns, and transportation in) is used to accumulate data on the net cost of the purchases only its accounting period. However, when the inventory is counted, transaction entries will be made to the inventory account to establish its proper accounting balance.
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