Question

if you are using the perpetual inventory system and you sell, on account, goods for 100,000 which cost you $70,000, the journal entries for this transaction would not include

a. a credit to sales for 100,000

b a credit to gain on sale for $30,000

c. a debit to A/R for $100,000

d. a debit to cost of goods sold for $70,000

Answer 1

• When perpetual inventory method is used, following two entries are recorded when a ‘sales transaction’ takes place.

Entry	Accounts title	Debit	Credit
#1	Accounts receivables	$          100,000.00
	Sales		$        100,000.00
	(sales on account recorded)
#2	Cost of Goods Sold	$            70,000.00
	Inventory		$           70,000.00
	(Cost of merchandise sold recorded)

[Figures given in questions are used]

• Correct Answer = Option ‘B’ a credit to gain on Sale for $ 30,000 is NOT included in the journal entries.