In a perpetual inventory system, which entry is recorded to recognize the sale of inventory for cash, where cost of goods sold is $50 and the sale price is $150?

• A. Debit Cash 150; Credit Sales Revenue 150. Debit Cost of Goods Sold 50; Credit Inventory 50
• B. Debit Cash 150; Debit Inventory 50; Credit Sales Revenue 150; Credit COGS 50
• C. Debit Sales Revenue 150; Credit Cash 150
• D. Debit Cash 150; Credit Inventory 150

Answer: (A)

In a perpetual inventory system, a cash sale affects both revenue and the inventory account. You must record the sale price as revenue and cash, and also recognize the cost of the inventory sold by reducing inventory and recording cost of goods sold.

So you would debit Cash for 150 and credit Sales Revenue for 150 to reflect the cash received and the revenue earned. At the same time, you debit Cost of Goods Sold for 50 and credit Inventory for 50 to show the expense of the goods sold and to decrease the inventory on hand.

This approach matches the financial effects: cash inflow and revenue on the one hand, and the expense of the goods sold plus a reduced inventory on the other. The other options either misstate the direction of the debits/credits, omit one of the required entries, or apply the wrong amounts to the wrong accounts.