Question

Under a perpetual which accounts should be debited the each time a sale on account is made?

a. Accounts Payable and Purchases.
b. Accounts Receivable and Purchases.
c. Accounts Receivable and Cost of Goods Sold.
d. Inventory and Cost of Goods Sold.

Answer 1

The correct answer is option c. Upon making a sale on invoice under a perpetual inventory system, Accounts Receivable and Cost of Goods Sold should be debited. Accounts Receivable records the owed money, while the Cost of Goods Sold account tracks the expenses of sold inventory.

Step-by-step explanation:

When a sale on account is made under the perpetual inventory system, two key journal entries reflect the sale and the cost of goods sold. The correct accounts that should be debited are Accounts Receivable and Cost of Goods Sold.

Upon the sale, Accounts Receivable is debited for the amount of sale because the customer now owes the company money. Concurrently, Sales Revenue is credited to record the income earned from the sale. This entry affects the balance sheet and the income statement respectively, highlighting the inflow of potential cash and the increase in income.

For the cost of the goods sold, Cost of Goods Sold is debited, representing an expense related to the sale. Simultaneously, Inventory is credited, decreasing the asset account on the balance sheet for the cost of the inventory sold.

Therefore, the correct option is:
c. Accounts Receivable and Cost of Goods Sold.