What are the correct journal entries to record the sale on account in a perpetual inventory system according to the given data?
The correct journal entries to record the sale on account in a perpetual inventory system are:
Accounts Receivable (debit) and Sales Revenue (credit), with Cost of Goods Sold (debit) and Merchandise Inventory (credit) to record the cost of the goods sold. This transaction should be recorded as follows:
C. Accounts Receivable 2300
Sales Revenue 2300
Cost of Goods Sold 1150
Merchandise Inventory 1150
Explanation:
The correct journal entries to record this transaction under the perpetual inventory system are option C. This entry correctly records the sale on account by debiting Accounts Receivable for $2300 and crediting Sales Revenue for $2300. The cost of the goods sold is recorded by debiting Cost of Goods Sold for $1150 and crediting Merchandise Inventory for $1150.
In a perpetual inventory system, the company updates the inventory balance after each sale and purchase in real-time. This allows for accurate tracking of inventory levels and cost of goods sold without the need for a physical inventory count at the end of the accounting period.
When goods are sold on account in a perpetual inventory system, two main journal entries are required. The first entry debits Accounts Receivable to recognize the amount owed by the customer and credits Sales Revenue to recognize the revenue generated from the sale. The second entry debits Cost of Goods Sold to recognize the expense associated with the sale and credits Merchandise Inventory to reduce the inventory balance. This ensures that the financial statements accurately reflect the cost of goods sold and the revenue earned from the sale.
Recording transactions accurately in the accounting records is essential for preparing reliable financial statements and making informed business decisions. By following the correct journal entry procedures for sale on account in a perpetual inventory system, businesses can maintain accurate inventory records and track their financial performance effectively.
In conclusion, the correct journal entries for recording a sale on account in a perpetual inventory system involve debiting Accounts Receivable and Cost of Goods Sold, and crediting Sales Revenue and Merchandise Inventory. By following these entry procedures, businesses can ensure accurate financial reporting and inventory management in their operations.