Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

Question

Quizplus · Accepted Answer

Under a perpetual inventory system, the Cost of Merchandise Sold (COGS) is recorded at the time of the sale. Therefore, we need to record the entry to reflect the cash receipt, the sale revenue, and the COGS. We also need to credit the Merchandise Inventory account to reduce it by the cost of goods sold. Thus, option B is the correct answer, which is Cash $2,000 Dr, Sales $2,000 Cr, and COGS $1,250 Dr, Merchandise Inventory $1,250 Cr. Option A is incorrect as it does not record the sales revenue. Option C is incorrect as it does not account for the cost of the merchandise sold. Option D is incorrect as it assumes that the sale is made on credit, which is not stated in the problem.