How Should Davis Hardware Company Record the Sale of Merchandise?

What is the proper way for Davis Hardware Company to record the sale of merchandise, costing $660, and sold on account for $1,040? In a perpetual inventory system, Davis Hardware Company should record the sale of merchandise by debiting Accounts Receivable for $1,040 and crediting Sales Revenue for $1,040. Additionally, Inventory should be debited for the cost of the merchandise, which is $660, and Cost of Goods Sold should be credited for the same amount. Therefore the correct option is B.

Explanation:

In a perpetual inventory system, Davis Hardware Company should record the sale of merchandise by debiting Accounts Receivable for $1,040 and crediting Sales Revenue for $1,040. Additionally, Inventory should be debited for the cost of the merchandise, which is $660, and Cost of Goods Sold should be credited for the same amount. The entry would be:

Accounts Receivable - $1,040

Sales Revenue - $1,040

Inventory - $660

Cost of Goods Sold - $660

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