Question

The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the ___.

Option 1: Sales Department
Option 2: Accounts Receivable
Option 3: Cost of Goods Sold
Option 4: Purchasing Department

Answer 1

The decrease in inventory due to a sale is recorded in the Cost of Goods Sold (COGS) account, which is a direct expense reflected on the income statement to calculate gross profit.

Step-by-step explanation:

The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the Cost of Goods Sold. When a company sells inventory, this not only impacts the revenue but also reflects on the cost associated with the inventory that was sold. This cost is recorded under the Cost of Goods Sold (COGS) account, which is a direct expense subtracted from the sales revenue to calculate gross profit on the income statement. It is not an adjustment made by the Sales Department or the Purchasing Department. Neither is it directly related to the Accounts Receivable, although that account will reflect the revenue from the sale if it was made on credit. It's crucial to accurately record COGS to represent the true financial position of the company.