All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. The entry to record the transaction on December 10 will involve a debit to Cost of Goods Sold for .

Purchase or sale transactions which are made on credit,in this case First-in-First-out method and perpetual method used for transactions.This is explained in the following way.

Explanation:

1.The first-in, first-out (FIFO) method is a mostly used inventory valuation method that assumes that the goods are sold (by merchandising companies) or materials are issued to production department (by manufacturing companies) in the order in which they are purchased. In other words, the costs to acquire merchandise or materials are charged against revenues in the order in which they are incurred.

2.Under first-in, first-out method, the ending balance of inventory represents the most recent costs incurred to purchase merchandise or materials. The use of FIFO method is very common to compute cost of goods sold and the ending balance of inventory under both perpetual and periodic inventory systems.

3.The example given below explains the use of FIFO method in a perpetual inventory system. If you want to understand its use in a periodic inventory system, read “first-in, first-out (FIFO) method in periodic inventory system” article.

4.Perpetual Inventory System Journal Entries

Inventory Purchase: Under perpetual inventory system, a purchase is recorded by debiting inventory account and crediting accounts payable assuming that the purchase is on credit. ...

Purchase Discount: Purchase discount will reduce the inventory directly. ...

Purchase Return: ...

Inventory Sale: ...

Sales Return

5.Perpetual FIFO is a cost flow tracking system under which the first unit of inventory acquired is presumed to be the first unit consumed or sold.

6.A perpetual inventory system keeps continual track of your inventory balances. Updates are automatically made when you receive or sell inventory. Purchases and returns are immediately recorded in your inventory accounts. For example, a grocery store may use a perpetual inventory system.

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