Under the Perpetual Inventory System What Is the Correct Entry

question 26

Multiple Choice

Under the perpetual inventory system what is the correct entry to record the cost of the sale of 2 reclining chairs sold to a customer at $1100 per chair including GST? The items were originally purchased on credit at $500 each plus GST of $50 per chair.

• A) Debit cost of sales $2200; credit sales $2200
• B) Debit cost of sales $1000; debit GST outlays $100; credit inventory $1100
• C) Debit cost of sales $2000; credit inventory $2000
• D) Debit cost of sales $1000; credit inventory $1000

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Definitions:

Pure Competition

A market structure characterized by a large number of small firms, a homogeneous product, and easy market entry and exit.

X-Inefficiency

Refers to the situation where a firm is not maximizing its potential output due to managerial or organizational inefficiencies, leading to higher production costs than necessary.

Allocative Efficiency

A state of resource utilization where the distribution of goods and services is optimized to meet consumer preferences and maximize overall welfare.

Productive Efficiency

The scenario in which a good or service is produced at the lowest possible cost, utilizing resources and technologies in the most efficient manner.