Question

Shankar company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 2 for 40,000 and then sells this inventory on account on March 17 for60,000. Record the transactions for the purchase and sale of inventory.

Answer 1

To record inventory transactions in a perpetual system for Shankar company, an initial inventory purchase is recorded as a debit to Inventory and a credit to Accounts Payable. Upon sale, Accounts Receivable is debited and Sales Revenue is credited for the sale amount, and Cost of Goods Sold is debited with Inventory credited for the cost amount.

Step-by-step explanation:

The student's question is about recording inventory transactions in a perpetual system for the Shankar company. When the company purchases inventory on February 2 for $40,000 on account, the following entry is made:

• Debit Inventory $40,000
• Credit Accounts Payable $40,000

Then, when Shankar company sells the inventory on March 17 for $60,000 on account, the transactions recorded are:

• Debit Accounts Receivable $60,000
• Credit Sales Revenue $60,000
• Debit Cost of Goods Sold $40,000
• Credit Inventory $40,000