Here is an Periodic Recording Method: Concepts and Application in Accounting

kelolalaut.com The periodic recording method is one of the systems used in accounting to record a company's financial transactions periodically, rather than every time a transaction occurs. In this method, the company does not directly record transactions in the inventory account; instead, it records them in the purchase account and updates the inventory report periodically (for example, at the end of each month or year).

1. Concept of the Periodic Recording Method

The periodic recording method focuses on recording transactions conducted within a certain period, such as monthly or yearly. In this method, the inventory held by the company is not updated automatically every time a purchase or sale transaction occurs. Instead, the recording is done by gathering transaction data during the period and making adjustments at the end of the period.

At the end of the period, the company will perform a physical count of the inventory. Afterward, financial statements such as the Income Statement and Balance Sheet are prepared based on the information gathered during the period.

2. Steps in Recording Under the Periodic Method

The periodic recording method has several key steps in its recording process:

• Recording Purchases

All purchase transactions are recorded in the Purchases account without changing the balance of the Inventory account.

• Physical Inventory Count

At the end of the period, the company performs a physical count of the inventory on hand.

• Cost of Goods Sold (COGS) Calculation

COGS is calculated based on the following formula:

COGS = Beginning Inventory + Purchases – Ending Inventory

• Financial Statements

After the calculation, the information is used to prepare the financial statements, such as the income statement and balance sheet.

3. Advantages and Disadvantages of the Periodic Method

Advantages:

• Simplicity

This method is simpler and easier to apply, especially for small businesses with a limited volume of transactions.

• Lower Costs

Compared to the perpetual recording method, the periodic method is more cost-effective as it does not require an automated system or hardware to track inventory in real time.

Disadvantages:

• Lack of Real-Time Accuracy : Since inventory data is only updated at the end of the period, companies cannot access real-time inventory information.
• Physical Counting Process : The physical count of inventory done periodically requires time and effort and may result in errors or data loss.

4. Application in Business

The periodic recording method is typically applied by businesses with a relatively low volume of transactions, such as small enterprises, retail stores with limited inventory, or businesses that do not require automated inventory tracking systems.

Conclusion

The periodic recording method is a simple and cost-effective way of recording financial transactions, but it requires physical inventory counting at the end of the period. Although this method does not provide real-time inventory information, it is still useful for businesses with limited transactions and those that do not need to monitor inventory on a continuous basis.

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