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

Warnerwoods Company uses a perpetual inventory system. When the company sells inventory to a customer, which of the following journal entries is required to record the cost of goods sold?

Debit Purchases; Credit Inventory

Debit Cost of Goods Sold; Credit Purchases

Debit Cost of Goods Sold; Credit Inventory

Debit 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 inventory is sold, the cost of goods sold (COGS) is recorded immediately, and the inventory account is reduced.

Identify the accounts involved: The cost of goods sold (COGS) account represents the expense incurred for the inventory sold, while the inventory account represents the value of goods available for sale.

Determine the correct journal entry: When inventory is sold, the company needs to debit the Cost of Goods Sold account to record the expense and credit the Inventory account to reduce the value of inventory.

Analyze why other options are incorrect: For example, 'Debit Purchases; Credit Inventory' is incorrect because purchases are not debited in a perpetual system; inventory is updated directly. Similarly, 'Debit Inventory; Credit Cost of Goods Sold' reverses the correct entry and does not reflect the reduction in inventory or the expense incurred.

Write the journal entry: The correct journal entry is 'Debit Cost of Goods Sold; Credit Inventory,' which reflects the expense and reduction in inventory value due to the sale.