Which of the following best describes the journal entry to record the cost of goods sold under a perpetual inventory system in process costing?

• A. Debit Cost of Goods Sold; Credit Raw Materials Inventory
• B. Debit Cost of Goods Sold; Credit Finished Goods Inventory
• C. Debit Finished Goods Inventory; Credit Cost of Goods Sold
• D. Debit Work in Process Inventory; Credit Cost of Goods Sold

Answer: (B)

Verified step by step guidance

1. Understand the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. When goods are sold, the cost of goods sold (COGS) is recorded, and the inventory account is adjusted accordingly.
2. Identify the correct accounts involved: Under a perpetual inventory system, the cost of goods sold is recorded by debiting the Cost of Goods Sold account and crediting the Finished Goods Inventory account. This reflects the transfer of costs from inventory to expenses.
3. Analyze the options provided: The correct journal entry should show the reduction in Finished Goods Inventory (credit) and the recognition of the expense in Cost of Goods Sold (debit). This matches the perpetual inventory system's process.
4. Eliminate incorrect options: For example, 'Debit Finished Goods Inventory; Credit Cost of Goods Sold' is incorrect because it reverses the proper flow of costs. Similarly, 'Debit Work in Process Inventory; Credit Cost of Goods Sold' is incorrect because Work in Process Inventory is used earlier in production, not at the point of sale.
5. Select the correct answer: Based on the perpetual inventory system, the correct journal entry is 'Debit Cost of Goods Sold; Credit Finished Goods Inventory,' as this properly reflects the movement of costs from inventory to expenses upon sale.