Assume that a perpetual inventory system is in use.Which of the following statements regarding the journal entries prepared is correct?
A) "Freight-out" or delivery costs associated with sales should be included in Cost of Goods Sold.
B) When a company receives payment from a customer for a sale, Cash is debited and Accounts Payable is credited.
C) When a company grants an allowance to a customer, Inventory is credited when using a perpetual inventory system.
D) When a customer returns inventory, the seller debits Sales Returns & Allowances under a perpetual inventory system.

Question

Quizplus · Accepted Answer

When a customer returns inventory under a perpetual inventory system, the seller debits Sales Returns and Allowances, and credits Inventory to reflect the decrease in inventory. Choice A is incorrect because freight-out costs are considered a selling expense and should be recorded separately from Cost of Goods Sold. Choice B is incorrect because when a company receives payment from a customer for a sale, Cash is debited, and Accounts Receivable is credited, not Accounts Payable. Choice C is incorrect because when a company grants an allowance to a customer, Sales Returns and Allowances is credited, not Inventory.

Assume That a Perpetual Inventory System Is in Use