Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?

Question

Quizplus · Accepted Answer

Under a periodic inventory system, the cost of goods sold is calculated at the end of the period based on physical inventory counts. Therefore, when a sale is made, the cost of the inventory sold is not immediately recorded in the accounts.

Option A is incorrect because it records a decrease in inventory but does not record the cost of goods sold.

Option C is incorrect because it records the cost of goods sold but does not reflect the decrease in inventory.

Option D is incorrect because it records the cost of goods sold but does not reflect the decrease in inventory.

Option B records the sale on account and defers the recording of the cost of goods sold until the end of the period when the physical inventory is counted. This is the correct way to record the transaction under a periodic inventory system.

Davis Hardware Company Uses a Periodic Inventory System B) Accounts Receivable