Able sells a piece of equipment to Smythe for $1,800 on August 1.The equipment cost $1,000.The equipment is picked up by Smythe on August 10.How is this transaction accounted for under a perpetual system of inventory?

Question

Quizplus · Accepted Answer

Under a perpetual system of inventory, each transaction related to inventory is recorded as soon as it occurs. Hence, the sale of equipment to Smythe would be recorded on August 1 as a debit to Cash or Account Receivable (depending on the payment terms), and a credit to Sales Revenue. Additionally, inventory (equipment) costing $1,000 would be removed from the inventory account through a debit made to Cost of Goods Sold and a credit to Inventory account. When Smythe picks up the equipment on August 10, there would be no further accounting impact on this transaction. Option B reflects this treatment accurately.

Able Sells a Piece of Equipment to Smythe for $1,800