Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Which of the following best describes the journal entry to record the cost of goods sold under a perpetual inventory system in process costing?

Debit Cost of Goods Sold; Credit Raw Materials Inventory

Debit Cost of Goods Sold; Credit Finished Goods Inventory

Debit Finished Goods Inventory; Credit Cost of Goods Sold

Debit Work in Process Inventory; Credit Cost of Goods Sold

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Verified step by step guidance

Understand the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. When goods are sold, the cost of goods sold (COGS) is recorded, and the inventory account is adjusted accordingly.

Identify the correct accounts involved: Under a perpetual inventory system, the cost of goods sold is recorded by debiting the Cost of Goods Sold account and crediting the Finished Goods Inventory account. This reflects the transfer of costs from inventory to expenses.

Analyze the options provided: The correct journal entry should show the reduction in Finished Goods Inventory (credit) and the recognition of the expense in Cost of Goods Sold (debit). This matches the perpetual inventory system's process.

Eliminate incorrect options: For example, 'Debit Finished Goods Inventory; Credit Cost of Goods Sold' is incorrect because it reverses the proper flow of costs. Similarly, 'Debit Work in Process Inventory; Credit Cost of Goods Sold' is incorrect because Work in Process Inventory is used earlier in production, not at the point of sale.

Select the correct answer: Based on the perpetual inventory system, the correct journal entry is 'Debit Cost of Goods Sold; Credit Finished Goods Inventory,' as this properly reflects the movement of costs from inventory to expenses upon sale.