Question

Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?Picture

Answer 1

Answer:

Credit Inventory and debit cost of sales with cost of inventory $620 and

Credit Sales and Debit Account receivable or Cash for Sale value of $960

Explanation:

Under the Perpetual inventory system, no purchases account are maintained rather an on-going balance for two accounts are maintained, namely: 'cost of goods available for sale' and 'cost of goods sold'.

Since no purchases account is maintained under this method, the inventory account is updated with every purchase of inventory, and all expenses relating to inventory directory.

So if Davis makes a sale of inventory costing $620 for $960 on account, the following entries will be effected.

Dr  Cost of Sales............................620

Cr. Inventory...............................................620

Dr. Accounts Receivable............960

Cr.  Sales....................................................960

Being sale of goods worth $620 at $960