Question

LuLu's Library sold 3 books to Sandra M on account for a total of $60. The total cost of the books sold was $34. Record the journal entries that would be made for this transaction using a perpetual inventory system. Why are two journal entries required to record the sale of merchandise in a perpetual inventory system? (100-150 words)

Use the information from above. Sandra M returned 1 book. Record the journal entries for this transaction in a perpetual inventory system. Explain why two journal entries are required to record a sales return. (100-150 words)

Answer 1

Journal Account Titles Debit Credit $ 60 Accounts Receivable Sales (Sales made on account recorded) $ 60 Cost of Goods Sold Inventory (Inventory adjusted for sales) $34 $ 34

Reason for the requirement of two journal entries required to record the sale of merchandise in a perpetual inventory system - Whenever any sale is made, the sales amount has two components, cost, and profit. So, one entry is required to reduce the inventory at its cost price and the other entry is required to record the sales revenue at cost plus profit amount.

So, The first entry is debiting Accounts Receivables (Asset) and crediting Sales (Income)

The second entry is debiting Cost of Goods Sold (Expense) and crediting Inventory (Asset).

Reason for the requirement of two journal entries required to record a sales return - Whenever any sales return is received, two things are required to be done, the first is recognizing the earlier sales revenue recorded and the second is increasing the inventory level. Hence, two journal entries are required.

The first entry is debiting Sales Return (It is a contra account to Sales) and crediting Accounts Receivable (Asset).

The second entry is debiting Inventory (which was debited earlier) and crediting Cost of Goods Sold (which was debited earlier). This entry is the exact reversal of the entry made at the time of sale.