In a perpetual inventory system, when a sale is made on credit, what is the correct journal entry to record the sale?

• A. Dr Cash; Cr Sales Revenue; Dr COGS; Cr Inventory
• B. Dr Accounts Receivable; Cr Sales Revenue; Dr COGS; Cr Inventory
• C. Dr Accounts Receivable; Dr COGS; Cr Sales Revenue; Cr Inventory
• D. Dr Accounts Receivable; Dr Cash; Cr Sales Revenue; Cr Inventory

Answer: (B)

In a perpetual inventory system, a sale made on credit updates both revenue and the cost of the sale at the moment it occurs. You record a debit to Accounts Receivable to show the amount you expect to collect, and a credit to Sales Revenue to recognize the earnings from the sale. At the same time, you must reflect the cost of the goods sold by debiting COGS (an expense) and crediting Inventory to reduce the asset for the goods that were sold. This pairing keeps revenue recognition and the matching costs aligned in the same period. So the proper entry includes: Debit Accounts Receivable and Debit COGS, with Credit Sales Revenue and Credit Inventory. The order of the lines isn’t important, but the effects must be AR increase and revenue increase, and inventory decrease with COGS increase.