Question

A client wants to donate five widgets (set up as inventory items) to a charity. In the item setup, the cost is $5 and the sales price is $10. Fifty widgets were originally purchased at $6 per widget.

What is the effect on the General Ledger when this is recorded on a Sales Receipt?

• A) Debit COGS $30; credit inventory $30

• B) Debit COGS $30; credit inventory $30; debit bank account $50; credit income $50

• C) Debit COGS $25; credit inventory $25; debit Bank account funds $50; credit income $50

• D) Debit COGS $25; credit inventory $25

• E) Debit Donations $30; credit inventory $30

Answer 1

E) Debit Donations $30; credit inventory $30

($6 × 5)

As it is purchased at $6 per widget, so it should be recorded on a sale receipt as $30.