Wize University Introduction to Financial Accounting Textbook > Merchandising
Recording Sales - Perpetual Inventory
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Recording Sales (Perpetual)
Recording sales using the perpetual inventory system involves recording not only the revenue earned, but also the change to the balance of the company's inventory account.
Sale of Merchandise
Two journal entries
- First entry: Record Sales revenue and proceeds from sale (typically Cash or Accounts receivable)
- Second entry: Debit Cost of goods sold and Credit Inventory
Freight Cost
- Cost of shipping merchandise from to customer.
- If seller pays for shipping, the freight cost is expensed, account is called Freight Out or Shipping expense.
- Who pays for shipping?
- FOB destination: seller is responsible for the goods until they reach the destination.
- Thesellerpays for the shipping.
- Sale is recorded the day the goods reach the destination.
- The shipping cost is expensed, account is called Freight Out or Shipping expense.
- FOB shipping point: buyer is responsible for the goods as soon as they are shipped.
- Thebuyerpays for the shipping.
- Sale is recorded the day the goods are shipped.
- Seller does not record shipping cost.
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Example: Recording Sales (Perpetual)
Prepare all necessary journal entries related to the events on May 14:
XYZ Corp. sold 50 units to Customer X on account at a price of $80 per unit. The inventory was valued at $30 per unit in the company's books.
Practice: Recording Sales (Perpetual)
Wize Merchandisers Inc. has just hired you to be their new bookkeeper and your first task is to prepare journal entries for all the following events that took place in April 2020. The company uses the perpetual inventory system.
Apr. 1: Sold merchandise to a Twilight Ltd. for $2,000 on account. The cost of the merchandise was $750. The terms of the sale are 1/10, n/30 and FOB destination. The merchandise was shipped the following day at a cost of $60 and was delivered on April 5th.
Apr. 7: Twilight Ltd. returned 25% of the goods purchased on April 1st.
Apr. 8: Sold 90 units of merchandise for $25 per unit to Omega Corp. The merchandise had cost Wize $10 per unit. The terms of the sale are 2/15, n/45, FOB shipping point. The goods were shipped on April 10th at a cost of $140 and were received by the customer on April 14th.
Apr. 9: Twilight Ltd. paid their balance in full.
Apr. 14: Omega Corp. paid $2,000 for a purchase made in March.
Apr. 15: Omega Corp. paid $500 towards their balance owing from the purchase made April 8th.
Apr. 21: Twilight Ltd. returned 10% of the goods purchased on April 1st.
Apr 29: Omega Corp. paid their remaining balance.
Prepare the journal entry to record the shipping cost for the sale on April 1st
Transactions:
| Account | Debit | Credit |
|---|---|---|