Periodic inventory is a method of recording inventory. It recognizes and values inventory at the end of the accounting period. All purchases of inventory during the accounting period are held under a temporary account called "purchases". This account is closed at the end of the accounting period.
Example:
On, January 1st 201X, Adequate Disclosure purchases $2o0,000 worth of inventory ($10o x 2,000 items).
DR: Purchases $200,000
CR: Cash $200,000
On January 3rd 201X, Adequate Disclosure sells 1,000 pieces of its inventory for $150 each.
DR: Cash $150,000
CR: Sales $150,000
At the end of the Accounting Period:
DR: Inventory (Ending) $100,000
DR: Cost of Goods Sold $100,000
CR: Purchases $200,000
Inventory (January 1st purchase of inventory $200,000 subtract $100,000 sold of on January 3rd)
Cost of Goods Sold (1,000 x $100)
Purchases (January 1st purchase)