Perpetual Inventory System Template - Free Download
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This instructional aid was prepared by the Tallahassee Community College Learning Commons.
Seller Entries Using the Perpetual Inventory System
Instructions: Journalize the following Transactions for the Seller assuming they are using the Perpetual
, PW Audio Supply sold $3,800 of Merchandise Inventory to Sauk Stereo on Account with terms
2/10/n/30 which cost PW $2,400. On May 6
, Sauk paid $150 freight charge to Haul-It. On May 8
was determined that $300 of the goods shipped was inoperable, so they were returned to PW Audio
Supply. These goods cost PW $140. On May 14
, PW audio Supply paid in full.
Entries on the sellers’ Side (PW Audio Supply)
The first entry one must make is to put the inventory Sold into the system. When a company performs a
sale, it is composed of two entries. The first is the Sale of the item, which in this case is a debit to
Accounts Receivable, and a credit to Sales Revenue. This is the “external” entry, or the cost the
customer knows about. The “internal” entry involves the Cost required to get the item, and the loss of
inventory, so it requires a debit to Cost of Goods Sold, and a Credit to Merchandise Inventory.
Sale of merchandise on credit
Cost of Goods Sold
Since PW didn’t pay for the shipping costs, there will be no entry for the freight.
However, they did have some of their sale returned to them which they must account for.
Once again, there is an “internal” entry and a “external” entry. The “external” entry would be the
lowering of the Accounts Receivable by $300, which would be a credit, and PW would debit Sales
Returns and Allowances for $300. The “internal” entry would be the returning of the Merchandise
Inventory, and reduction of the Cost of Goods sold, or the reverse of the last entry. This is accomplished
by debiting Merchandise inventory for $140, and crediting Cost of Goods Sold by $140.
Return of Damaged Goods
Sales Returns and Allowances
Cost of Goods Sold
Finally they must recognize the receipt of payment which they received on the 14
. Sauk will pay them
for the $3,500 dollars they are owed ($3,800-$300 = $3,500 Debit balance.) In order to eliminate the
Accounts Receivable, PW must Credit them for $3,500. Since Sauk paid within the credit terms of 10
days, they will receive a Sales discount of 2%, which is $70. The remaining $3,430 will be paid in cash.
Thus, there will be 3 accounts involved with journalizing this entry.
Payment on Account with