Explanation Perpetual Inventory System: Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time. Prepare journal entries to record the given transactions; assume that the Incorporation E uses net method in a perpetual inventory system: Date Account Title & Explanation Debit ($) Credit($) July 12 Cash 1,000 Sales Revenue 1,000 (To record the goods sold to Company W for cash) Cost of goods sold 600 Inventory 600 (To record cost of goods sold incurred) July 15 Accounts receivable 4,850 Sales Revenue (2) 4,850 (To record the goods sold to Company C on account) Cost of goods sold 3,500 Inventory 3,500 (To record cost of goods sold incurred) July 16 Accounts receivable 2,910 Sales Revenue (4) 2,910 (To record the goods sold to Company O on account) Cost of goods sold 1,900 Inventory 1,900 (To record cost of goods sold incurred) July 23 Cash (2) 4,850 Accounts Receivable 4,850 (To record the cash received from company C and sales discount provided to company C) July 31 Cash 3,000 Other revenue (3) 90 Accounts receivable (4) 2,910 (To record the cash received from company O) Table (1) Justification: For July 12: Cash is an asset and it increases the value of asset. Hence, debit the accounts receivable by $1,000. Sales revenue is a component of stock holders’ equity and it increases the value of stockholder’s equity. Hence, credit the sales revenue by $1,000. Cost of goods sold is a component of stockholders’ equity and it decreases the value of stockholder’s equity. Hence, debit cost of goods sold by $600. Inventory is an asset and it decreases the value of assets. Hence, credit inventory by $600. For July 15: Accounts receivable is an asset and it increases the value of asset. Hence, debit the accounts receivable by $4,850. Sales revenue is a component of stock holders’ equity and it increases the value of stockholder’s equity. Hence, credit the sales revenue by $4,850. Cost of goods sold is a component of stockholders’ equity and it decreases the value of stockholder’s equity. Hence, debit cost of goods sold by $3,500. Inventory is an asset and it decreases the value of assets. Hence, credit inventory by $3,500. For July 16: Accounts receivable is an asset and it increases the value of asset...

6th Edition

ISBN: 9781259864230

Author: PHILLIPS, Fred, Libby, Robert, Patricia A.

Publisher: Mcgraw-hill Education,

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Chapter 6, Problem 26E

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Prepare journal entries to record the given transactions; assume that Incorporation E uses net method in a perpetual inventory system.

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Prepare journal entries to record the given transactions; assume that Incorporation E uses net method in a perpetual inventory system.

Solution Summary: The author assumes that Incorporation E uses net method in a perpetual inventory system. It shows the exact on-hand-inventory at any time.

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Prepare journal entries to record the given transactions; assume that Incorporation E uses net method in a perpetual inventory system.

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