A merchandising company using a perpetual system may record an adjusting entry by

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A merchandising company using a perpetual system may need to make an adjusting entry to adjust the cost of goods sold account. When the company initially records a sale, it debits the accounts receivable or cash account and credits the sales revenue account. However, it may not have accounted for the cost of goods sold at that time. To adjust for this, the company needs to debit the cost of goods sold account and credit the inventory account to reduce the inventory balance and increase the cost of goods sold expense. Therefore, the best choice is to debit the cost of goods sold account.

A Merchandising Company Using a Perpetual System May Record an Adjusting