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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

If a company uses the perpetual inventory system and records a sale of inventory with variable costs of $20 per unit, what is the correct journal entry to record the cost of goods sold at the time of sale?

No entry is made until the end of the period

Debit Cost of Goods Sold $20; Credit Inventory $20

Debit Inventory $20; Credit Cost of Goods Sold $20

Debit Purchases $20; Credit Inventory $20

Previous problemNext problem

Verified step by step guidance

Understand the perpetual inventory system: In this system, inventory and cost of goods sold (COGS) are updated continuously as transactions occur. This means that every sale of inventory requires an immediate adjustment to both the inventory account and the COGS account.

Identify the accounts involved: When inventory is sold, the cost of the inventory is transferred from the 'Inventory' account to the 'Cost of Goods Sold' account. This reflects the expense incurred to generate revenue.

Determine the journal entry format: To record the cost of goods sold, you need to debit the 'Cost of Goods Sold' account (an expense account) and credit the 'Inventory' account (an asset account). This reduces the inventory balance and increases the expense associated with the sale.

Apply the given variable cost per unit: The problem states that the cost per unit is $20. For each unit sold, the journal entry will reflect this amount. If multiple units are sold, the total cost would be calculated as $20 multiplied by the number of units sold.

Write the journal entry: Based on the perpetual inventory system, the correct journal entry is: Debit 'Cost of Goods Sold' for $20 (or the total cost for multiple units) and Credit 'Inventory' for $20 (or the total cost for multiple units). This ensures proper accounting for the sale of inventory.