The ABC merchandise Company has the following transactions: May 01: The Company purchased 5 units of inventory on account at a cost of $500 each. May 04: sold 4 units of inventory on account at a price of $800 each. May 05: Purchased an additional 6 units on account at a cost of $500. May 07: Paid $2500 against purchases to supplier of inventory. May 08: Sold 5 units of inventory for cash at a sale price of $850. May 10: Collected $3200 from the customer against the credit sales on May 04. Requirement: Prepare the journal entries to record the above transactions by using the following: 1. Perpetual inventory system 2. Periodic inventory system
The ABC merchandise Company has the following transactions:
May 01: The Company purchased 5 units of inventory on account at a cost
of $500 each.
May 04: sold 4 units of inventory on account at a price of $800 each.
May 05: Purchased an additional 6 units on account at a cost of $500.
May 07: Paid $2500 against purchases to supplier of inventory.
May 08: Sold 5 units of inventory for cash at a sale price of $850.
May 10: Collected $3200 from the customer against the credit sales on
May 04.
Requirement: Prepare the
using the following:
1. Perpetual inventory system
2. Periodic inventory system
Expert Answer
Under the perpetual inventory system, the cost of goods sold are recorded immediately at the time of the sale and it is kept updated in the books. Under this system, there is no physical count of inventory on regular basis.
Under periodic inventory system, the physical count of inventory is taken from time to time. The cost of goods sold is recorded at the time of physical count of inventory which is generally at the end of the period.
Perpetual Inventory System
| Date | Particulars | Ref. | Debit | Credit |
| May 01 | Inventory | $2,500 | ||
| To Accounts payable | 2,500 | |||
| (Being goods purchased on account) | ||||
| May 04 | 3,200 | |||
| To Sales | 3,200 | |||
| (Being goods sold on account) | ||||
| Cost of goods sold | 2,000 | |||
| To Inventory | 2,000 | |||
| (Being cost of goods sold recorded $500 per unit) | ||||
| May 05 | Inventory | 3,000 | ||
| To Accounts payable | 3,000 | |||
| (Being goods purchased on account) | ||||
| May 07 | Accounts payable | 2,500 | ||
| To Cash | 2,500 | |||
| (Being amount paid to suppliers) | ||||
| May 08 | Cash | 4,250 | ||
| To Sales | 4,250 | |||
| (Being cash sales made @850 per unit) | ||||
| Cost of goods sold | 2,500 | |||
| To Inventory | 2,500 | |||
| (Being cost of goods sold recorded @ $500 per unit) | ||||
| May 10 | Cash | 3,200 | ||
| To Accounts receivable | 3,200 | |||
| (Being cash received from customers) |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
