A business sold some inventory that had cost $5,000 before taxes. The sale is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a perpetual inventory system. How much will be credited to the Merchandise Inventory account as a result of this sale?

Question

Quizplus · Accepted Answer

In a perpetual inventory system, the Merchandise Inventory account is credited for the cost of the goods sold. Taxes collected (GST and PST) do not affect the Merchandise Inventory account. Therefore, the correct amount to be credited is the cost of the goods sold, which is $5,000.

A Business Sold Some Inventory That Had Cost $5,000 Before