Faust Company uses the perpetual inventory system.Faust sold goods that cost $2,300 for $3,600.The sale was made on account.What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event. )

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Recording the sale increases assets (accounts receivable)and stockholders' equity (retained earnings)by $3,600.Sales revenue and net income increase.Recording the $2,300 cost of the merchandise decreases assets (merchandise inventory)and stockholders' equity (retained earnings).The expense (cost of goods sold)increases and net income decreases by that same amount.The net effect on assets and stockholders' equity is an increase to each of $1,300 (or selling price of $3,600 ? cost of goods sold of $2,300).

Faust Company Uses the Perpetual Inventory System