Journal Entry - Perpetual Inventory System

In Perpetual Inventory System, how will you record

Purchases: Purchase Inventory for P5,000.00 on account. What will be your debit account and amount?

• Accounts Payable for P5,000

• Accounts Receivable for P5,000

• Sales for P5,000

• Inventory for P5,000

Answer explanation

Entry:

Debit Inventory for P5,000

Credit Accounts Payable for P5,000

In Perpetual Inventory System, how will you record

Sales: Record a cash sale of P3,000.00, originally purchased for P1,500.00 from your supplier. What will be the effect on your sales?

• Credit Cash for P3,000

• Credit Sales for P3,000

• Debit Accounts Receivable for P3,000

• Debit Inventory for P3,000

Answer explanation

Effect on Sales:

Debit Cash for P3,000.00

Credit Sales for P3,000.00

Effect on Inventory and COGS:

Debit COGS for P1,500.00

Credit Inventory for P1,500.00

In Perpetual Inventory System, how will you record

Sales Returns: Customer A returns inventory worth P2,500.00 previously paid for cash, you originally purchased it from Supplier B for P2,000. What will be the effect on your inventory account?

• Debit Inventory for P2,500

• Debit Inventory for P2,000

• Credit Inventory for P2,500

• Credit Inventory for P2,000

Answer explanation

Effect on Sales:

Debit Sales Returns and Allowances for P2,500.00

Credit Cash for P2,500.00

Effect on Inventory and COGS:

Debit Inventory for P2,000.00

Credit COGS for P2,000.00

In Perpetual Inventory System, how will you record

Cost of Goods Sold: You sold inventory for P1,800.00 which cost you P1,200.00. What will be the effect on your Cost of Goods Sold account?

• Debit Cost of Goods Sold for P1,200

• Credit Cost of Goods Sold for P1,200

• Debit Inventory for P1,200

• Credit Inventory for P1,200

Answer explanation

Effect on Sales:

Debit Accounts Receivable for P1,800.00

Credit Sales for P1,800.00

Effect on Inventory and COGS:

Debit COGS for P1,200.00

Credit Inventory for P1,200.00

In Perpetual Inventory System, how will you record

Purchase with Trade Discount: Supplier sold Inventory at a 5% trade discount on a P500.00 cash payment. What will be your credit entry?

• Cash for P500

• Cash for P475

• Purchases Discounts for P25

• Inventory for P500

Answer explanation

Discount = P500 x 5% = P25

Cash Payment = P500 - P25 = P475

Entry upon purchase:

Debit Inventory for P475

Credit Cash for P475

In Perpetual Inventory System, how will you record

Purchase with Cash Discount: Supplier sold Inventory for P3,000.00 on account, w/ terms 2/10, n/30. What will be the effect when you pay the supplier beyond the discount period.

• No Entry

• Debit Inventory for P3,000.00

• Credit Purchases Discounts for P60.00

• Debit Accounts Payable for P3,000.00

Answer explanation

Discount = P3,000 x 2% = P60

Entry upon purchase:

Debit Inventory for P3,000.00

Credit Accounts Payable for P3,000.00

Entry upon payment within discount period:

Debit Accounts Payable for P3,000.00

Credit Cash for P2,940.00

Credit Inventory P60

Entry upon payment beyond the discount period:

Debit Accounts Payable for P3,000.00

Credit Cash for P3,000.00