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Explain the proper treatment for both periodic and perpetual

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Question

Under periodic and perpetual inventory systems, when do you need to capitalize freight costs as a part of inventory, and when is it simply expensed? For example:

Purchased $3,500 supplies from Alex's Wheel Store on credit, term 2/10, n/30. Paid freight costs of $425

For periodic I have:

Dr. Purchases $3,500

Dr. Freight costs $425

Cr. A/P $3,500

Cr. Cash $425

For perpetual:

Dr. Inventory $3,925

Cr. A/P $3,500

Cr. Cash $425

You are pretty sure it is capitalized under perpetual and expensed under periodic, but what you are worried about is determining whether or not anything should be done with that freight cost under the periodic inventory system when determining Ending Inventory and COGS. Can you please explain the proper treatment for both periodic and perpetual?

Reference no: EM132405139

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