Merchandise inventory account and all decreases are

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merchandise inventory account and all decreases are credited to the same account.There are no purchases and purchase returns and allowances accounts in this system. At the timeThere are no purchases and purchase returns and allowances accounts in this system. At the timeof sale, the cost of goods sold is recorded in addition to Journal entry for the sale. So, we canof sale, the cost of goods sold is recorded in addition to Journal entry for the sale. So, we candetermine the cost of inventory as well as goods sold from the accounting record. No need ofdetermine the cost of inventory as well as goods sold from the accounting record. No need ofphysical counting to determine their costs.physical counting to determine their costs.Companies that sell items of high unit value, such as appliances or automobiles, tended to use theCompanies that sell items of high unit value, such as appliances or automobiles, tended to use theperpetual inventory system.perpetual inventory system.Given the number and diversity of items contained in the merchandise inventory of mostGiven the number and diversity of items contained in the merchandise inventory of mostbusinesses, the perpetual inventory system is usually more effective for keeping track ofbusinesses, the perpetual inventory system is usually more effective for keeping track ofquantities and ensuring optimal customer service. Management must choose the system orquantities and ensuring optimal customer service. Management must choose the system orcombination of systems that is best for achieving the company's goal.combination of systems that is best for achieving the company's goal.Journal entries to be prepared are:Journal entries to be prepared are:1.1.At the time of purchase of merchandiseAt the time of purchase of merchandiseMerchandise inventoryMerchandise inventoryXXXXat costat costAccounts payable/cashAccounts payable/cashXXXXTo record cost of goods soldTo record cost of goods sold2.2.At the time of sale of merchandiseAt the time of sale of merchandise7
Accounts receivable or cashAccounts receivable or cashXXXXat retail priceat retail priceSalesSalesXXXXTo record cost of goods soldTo record cost of goods soldTo record the saleTo record the saleCost of goods soldCost of goods soldXXXXMerchandise inventoryMerchandise inventoryXXXXat costat costTo record the cost of merchandise soldTo record the cost of merchandise sold3.3.To record purchase returns and allowancesTo record purchase returns and allowancesAccounts payable or cashAccounts payable or cashXXXXMerchandise inventoryMerchandise inventoryXXXX4.4.No adjusting entry or closing entry for merchandise inventory is needed at the end ofNo adjusting entry or closing entry for merchandise inventory is needed at the end ofeach accounting period.

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Term
Fall
Professor
N/A
Tags
Physical inventory

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