Journal Entries Under the Perpetual Inventory System
Bhushan Building Supplies entered into the following transactions.
To record journal entries under the perpetual inventory system, you need to understand the basic principles and concepts of accounting. I'll explain each transaction and show you how to record the journal entries.
1. Purchased inventory on account from a supplier:
When a company purchases inventory on credit, it increases its inventory and incurs a liability to the supplier. To record this transaction, you would make the following journal entry:
Inventory (debit) XXX
Accounts Payable (credit) XXX
2. Sold inventory to a customer on account:
When a company sells inventory on credit, it decreases its inventory and earns revenue. It also creates an account receivable, indicating the amount owed by the customer. To record this transaction, you would make the following journal entry:
Accounts Receivable (debit) XXX
Sales Revenue (credit) XXX
Cost of Goods Sold (debit) XXX
Inventory (credit) XXX
3. Received cash from a customer on account:
When a company receives cash from a customer who previously made a purchase on credit, it reduces the accounts receivable and increases its cash account. To record this transaction, you would make the following journal entry:
Cash (debit) XXX
Accounts Receivable (credit) XXX
4. Paid cash to a supplier for inventory previously purchased on account:
When a company pays cash to a supplier for inventory previously purchased on credit, it reduces its accounts payable and its cash account. To record this transaction, you would make the following journal entry:
Accounts Payable (debit) XXX
Cash (credit) XXX
Remember to adjust the entry amounts based on the actual transaction amounts. Additionally, keep in mind that these journal entries represent the basic transactions commonly encountered in a perpetual inventory system, but there may be variations or additional entries depending on your specific business operations. Always consult with an accounting professional for accurately recording transactions based on your specific circumstances.