Is there a difference between the accounts Purchases and Inventory?

Purchases Account Under the Periodic Inventory System

The general ledger account Purchases is used to record the purchases of inventory items under the periodic inventory system. Under the periodic system the account Inventory will have no entries until it is adjusted at the end of the accounting year so that it reports the cost of the ending inventory.

Under the periodic system, the cost in the account Purchases will be added to the cost of the beginning inventory to arrive at the cost of goods available. The cost of the ending inventory is computed through a physical count (or an estimate) and is subtracted from the cost of goods available to arrive at the cost of goods sold.

Inventory Account Under the Perpetual Inventory System

The account Purchases is nonexistent with the perpetual inventory system. Under the perpetual inventory system, the cost of inventory items purchased are recorded directly into the account Inventory.

Under the perpetual system, the costs of the goods sold are removed from the account Inventory when the goods are sold and are recorded in the account Cost of Goods Sold. As a result, the balance in the account Inventory should be the cost of the ending inventory.

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