Shankar Company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 2 for $38,000 and then sells this inventory on account on March 17 for $58,000. Record transactions for the purchase and sale of inventory. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Debit Inventory $38,000

Credit Accounts Payable  $38,000

Being entries to record inventory purchased on account.

Debit Cost of goods sold  $38,000

Credit Inventory                 $38,000

Being entries to account for cost of items sold.

Debit Accounts receivable   $58,000

Credit Revenue account       $58,000

Being entries to recognize the sale of inventories.

Explanation:

When inventory is purchased on account, it means that cash was yet to be paid for the purchase and as such a liability should be recorded.

The entries required for the purchase of inventory would therefore be

Debit Inventory $38,000

Credit Accounts Payable  $38,000

Being entries to record inventory purchased on account.

When the items are sold on account, it means cash was not collected at the point of sale. This creates another asset called accounts receivable. Entries required on sale

Debit Cost of goods sold  $38,000

Credit Inventory                 $38,000

Being entries to account for cost of items sold

Then

Debit Accounts receivable   $58,000

Credit Revenue account       $58,000

Being entries to recognize the sale of inventories.

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