She felt that she and the other accountants should have helped develop more timely and effective system controls."
Accountant B. was right to be concerned. However, the balance sheets that were created during the year would eventually be checked, and the inventory balances would be noted. It would also be noted that inventory balances had been adjusted to reflect all downward adjustments at the end of the year The related income statement account would then have the periodic adjusting entry, which for CBU, when compiled at the end of the year, should equal the amount of $1 million.
Losses in supplies, but usually not inventory, need to be entered into the asset account in order to reduce the periodic balances. If part of January's inventory had been lost, that would have been recorded in January under the old (Perpetual) system. But under the Periodic System, it would not have been necessary to record any loss of inventory at that time. However, simply recording the loss, as Accountant A had done, in order to safeguard the "valuable enterprise resource," for CBU was sufficient, and an adjusting entry for all losses during the year, at the end of the year when inventory is reported as a current...
Whatever is purchased from suppliers is debited to the Purchases Account. At the end of the accounting year the Inventory account is adjusted to equal the cost of merchandise that remains unsold. Then, on the year's closing income statement, the cost of goods will equal the cost of merchandise not sold.
The diverse opinions are due to a misunderstanding of the procedures normally done under the Periodic Inventory system.
As a new procedure that should be developed, accountants, such as Accountant B. should be informed of the procedures normally done for this standard practice which is the new procedure being instituted at CBU.
Works Cited
Accounting Coach, L.L.C., 2006, http://www.accountingcoach.com/online-accounting-course/12Xpg03.html#cost-of-goods-sold-periodic-lifoand http://www.accountingcoach.com/online-accounting-course/12Xpg02.html#cost-of-goods-sold-inventory-systems.
