Using a perpetual inventory system, the sale of inventory on account is recorded with a:

• A. debit to Cost of Goods Sold and a credit to Accounts Receivable
• B. debit to Sales Revenue and a credit to Accounts Receivable
• C. debit to Inventory and a credit to Accounts Payable
• D. debit to Accounts Receivable and a credit to Sales Revenue; debit to Cost of Goods Sold and a credit to Inventory

Answer: (D)

Verified step by step guidance

1. Understand the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. Each sale impacts both the revenue and the inventory accounts.
2. Identify the accounts involved in the transaction: When inventory is sold on account, it affects Accounts Receivable, Sales Revenue, Cost of Goods Sold, and Inventory.
3. Record the revenue side of the transaction: The sale generates revenue, so you debit Accounts Receivable (to increase the amount owed by customers) and credit Sales Revenue (to recognize the income earned).
4. Record the inventory side of the transaction: The sale reduces inventory and recognizes the cost associated with the goods sold. Debit Cost of Goods Sold (to record the expense) and credit Inventory (to decrease the asset).
5. Ensure the double-entry accounting principle is followed: Each transaction must have equal debits and credits to maintain the balance in the accounting equation.