Question

Mitchell uses a perpetual inventory system. Mitchell sells a computer from inventory for 1,198 on credit. Mitchell originally bought the computer from IBM for790. What journal entry (entries) will Mitchell prepare to record the sale?

Answer 1

Mitchell should record two journal entries: one for the credit sale at $1,198 to Accounts Receivable and Sales Revenue, and another to recognize the cost of goods sold (COGS) at $790, debiting COGS and crediting Inventory.

Step-by-step explanation:

When Mitchell sells a computer on credit for $1,198 using a perpetual inventory system, Mitchell will need to make two journal entries. The first entry is to record the sale, and the second entry is to account for the cost of goods sold (COGS).

The journal entries would be as follows:

• To record the revenue from the sale:
  Accounts Receivable $1,198
  Sales Revenue $1,198
• To record the cost of goods sold:
  Cost of Goods Sold $790
  Inventory $790

This reflects the increase in accounts receivable due to the credit sale and the recognition of revenue. Simultaneously, it reflects the decrease in inventory and recording of COGS that represents the cost at which the computer was originally purchased from IBM.