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Perpetual vs Periodic Inventory Method Freight Costs | Professor Capko | YouTubeToText
YouTube Transcript: Perpetual vs Periodic Inventory Method Freight Costs
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Video Transcript
in today's video we're going to discuss
how to account for freight costs when a
company is purchasing merchandise for resale
resale
in both the perpetual
and periodic inventory methods
but before I get into that I want to
mention that I believe something great
is going to happen for you today
and now back to the video
if you're someone who
keeps confusing perpetual and periodic
inventory methods
give this video a thumbs up that way
I'll know to make more videos like this
to help you sort it out thank you in
this video we're going to discuss how to
journalize the freight costs for the
merchandise being shipped to the company
I did a prior video
showing how to account for the actual
purchases of the merchandise for
inventory if you missed that video I've
linked it up here for you
in this video we're going to talk about
the freight costs to deliver that
merchandise to the company that will
resell it and here we're going to talk
about fob shipping point fob stands for
free on board shipping point means that
it changes hands the legal ownership of
the of the merchandise changes at the
time it is shipped from the seller to
the buyer and the buyer is responsible
for the freight costs so that is why the
company that we're
accounting for here they're they're the
buyer they're buying the merchandise for
reselling to somebody else and they
incur freight costs of 150 and they're
going to pay
in the Perpetual inventory system
we need to account for that cost and
we're going to place that cost in inventory
inventory
we're just going to add that cost to the
cost of the inventory and ultimately it
will then flow through to the cost of
goods sold
when that inventory is sold so we're
going to debit the inventory for 150
dollars so we're actually
capitalizing it as an asset that
inventory that shipping costs are going
to be debited to the asset of inventory
and we're going to credit our cash
account because the cash is going down
by the hundred and fifty dollars that is
being paid
you have now properly accounted for the
freight costs
for fob shipping point under the
now let's look at the periodic inventory
method we're going to use the same 150 of
of
freight costs but in the case of
periodic inventory method we're going to
place this freight cost into a temporary
in
I'm going to go ahead and debit the 150 dollars
dollars
and just like in the Perpetual method
the periodic method we're going to
credit the cash because the cache has
gone out to
pay the carrier
you have now properly accounted for the
freight costs
for fob shipping point
in the periodic inventory method
now you're knowing a little bit more
about it but there's much more to know
so I'm more information such as this
sign up for my free email updates under
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