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 periodic system of inventory?

Question

Quizplus · Accepted Answer

Under periodic inventory system, the sale of the equipment will be recorded on August 1 as follows:
Debit Cash (or Accounts Receivable) $1,800
Credit Sales $1,800

The cost of the equipment will be recorded separately as Cost of Goods Sold (COGS) when the inventory is counted at the end of the period. Assuming no other purchases or sales of equipment during the period, the COGS for the equipment sold to Smythe will be recorded on August 31 (or at the end of the accounting period) as follows:
Debit COGS $1,000
Credit Inventory $1,000

Therefore, the entry for the sale of the equipment on August 1 will not include a debit to COGS because the cost of the equipment has not yet been recognized as an expense.

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