Question

The journal entry to record the cost of goods sold in process costing is a(n):______

a) decrease in assets and a decrease in liabilities
b) decrease in an asset and an increase in an expense
c) increase in assets and an increase in an expense
d) increase in assets and an increase in equity

Answer 1

Answer: b) decrease in an asset and an increase in an expense

Step-by-step explanation:

In process costing when recording the Cost of Goods sold, goods are to be transferred from the finished goods account to the Costs of Goods sold account to signify that the goods are ready for sale.

In such a situation the account to be debited is the Cost of Goods Sold account. The Account to be credited is the Finished Goods account.

The Cost of Goods sold is an Expense Account and Expense accounts increase when debited so this will result in an increase in Expenses.

The Finished Goods account is an Asset account and asset accounts reduce when they are credited. This will therefore reduce the Assets in the firm.