As the two sets of circled entries indicate

As the two sets of circled entries indicate - and cost of...

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As the two sets of circled entries indicate, two things happen when there is a sale or a sales return.  First, the sales transaction's effect on revenue must be recognized by making an entry to increase  accounts receivable and the sales account. Second, the flow of merchandise between inventory (an  asset) and cost of goods sold (an expense) is recorded in accordance with the matching principle. A  sales return has the opposite effect on the same accounts. Under the periodic system, the inventory 
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Unformatted text preview: and cost of goods sold accounts are updated only periodically, but under the perpetual system, entries that recognize a transaction's effect on these accounts occur when the revenue from the sale is recognized. For convenience, a sale or sales return can be recorded under the perpetual system with a compound entry that lists all four accounts. The general journal provides a simple, consistent format to present new information. However, most companies would record the sale in a sales journal....
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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