In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:
A) Inventory account.
B) Sales account.
C) Purchases account.
D) None of the above.

Question

Quizplus · Accepted Answer

In a perpetual inventory system, the cost of goods sold is updated each time a sale is made, reducing the inventory balance. Therefore, the entry to record the cost of goods sold should always include a corresponding entry to increase the cost of goods sold and decrease the inventory account by an equal amount. Option B is incorrect because the entry to record the sale would have been made at the time of the sale and not at the time of recording the cost of goods sold. Option C is incorrect because the purchases account is updated when goods are received, not when they are sold. Option D is incorrect because an entry is made to either increase or decrease an account.

In a Perpetual Inventory System, the Entry to Record the Cost