Question

A company that uses the perpetual inventory system sold goods to a customer for cash for 4200. The cost of the goods sold was 700. Which of the following journal entries correctly records this transaction?

1) Debit Cash 4200, Credit Sales 4200
2) Debit Cost of Goods Sold 700, Credit Inventory 700
3) Debit Accounts Receivable 4200, Credit Sales 4200
4) Debit Sales 4200, Credit Cost of Goods Sold 700

Answer 1

The correct journal entries for the sale of goods on cash using a perpetual inventory system are to debit Cash and credit Sales for 4200, and to debit Cost of Goods Sold and credit Inventory for 700.

Step-by-step explanation:

The transaction in question involves recording both a sales and an inventory cost aspect, which are handled separately in a perpetual inventory system. The correct journal entries to record this transaction are:

1. Debit Cash 4200, Credit Sales 4200.
2. Debit Cost of Goods Sold 700, Credit Inventory 700.

Both of these entries should be made to accurately reflect the transaction in the company's accounts. The first entry records the inflow of cash and the revenue from the sale, while the second reflects the reduction of inventory and recognizes the cost associated with the goods that were sold.