Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account? 1. Cost of Goods Sold 620 Purchases 620 Accounts Receivable 960 Sales Revenue 960 2. Accounts Receivable 960 Sales Revenue 960 3. Purchases 620 Gain 340 Sales Revenue 960 4. Accounts Receivable 960 Sales Revenue 620 Gain 340

Accounts Receivable 960 Sales Revenue 960

Explanation:

Under periodic inventory system inventory account is not updated for each purchase and each sale.

At the end of the period, the total in purchases account is added to the beginning balance of the inventory to compute cost of goods available for sale.

Hence, the only entries will be between Sales revenue and accounts receivable.

Dr. Accounts receivable ... 960

Cr. Sales Revenue ... 960

Answer: Accounts Receivable 960 Sales Revenue 960

Explanation: Periodic Inventory system involves taking physical count of inventory at specific intervals. The periodic Inventory system is only usually adopted in markets with low patronage or slow moving markets and where stock isn't large or cumbersome where the perpetual inventory system is usually adopted as it takes real-time, continuous update of inventory usually with the aid of a database management system.

In the periodic Inventory system, Account Receivable (claims of payment held by a business) will be the same as the sales revenue (cost generated from goods sold).