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Chapter 5: Q5-13RQ (page 294)

What are the two journal entries involved when recording the sale of inventory when using the perpetual inventory system?

Short Answer

Expert verified

In the perpetual inventory system, two primary journal entries include the following:

  1. Entry to record thesale,
  2. Entry to record thecost of goods sold.

Step by step solution

01

Meaning of Inventory Management System

A system that tracks the incoming and outgoing inventories and manages the shortagesandre-ordering tasks of the same is termed an inventory management system.

02

Journal entries recorded at the time of sale in the perpetual inventory system

Date

Accounts and Explanation

Debit ($)

Credit ($)

Cash/Accounts receivable

XXX

Sales revenue

XXX

(To record the sale of goods)

Cost of goods sold

XXX

Inventory

XXX

(To record the cost of goods sold)

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Most popular questions from this chapter

What are the two types of merchandisers? How do they differ?

Click Computers has the following transactions in July related to the sale of merchandise inventory.

July 12 Sold computers on account for \(8,000 to a customer, terms 3/15, n/30. The cost of the computers is \)4,800.

26 Received payment from the customer on the balance due.

Journalize the sales transactions for Click Computers assuming the company uses the perpetual inventory system.

Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.

Requirements

1. Under Dobbs鈥檚 FOB policy, when should the company record a sale?

2. Do you approve or disapprove of Dobbs鈥檚 manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs鈥檚 practice.)

What account is debited when recording the payment of freight when using the periodic inventory system?

Describe the multi-step income statement.
See all solutions

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