Perpetual Inventory System

Under perpetual inventory system, inventory balance is continuously updated after each purchase and sale transaction.

(1) Entity A purchased 1,000 units of merchandise at $6 per unit in cash.

Merchandise inventory

6,000

   Cash

6,000

(2) Entity A sold 400 units of merchandise at $10 per unit in cash.

Cash

4,000

   Sales revenue

4,000

Cost of goods sold

2,400 (*)

   Merchandise

2,400

        

        [Note]

        (*) 400 units x $6 per unit = $2,400

        Ending inventory = Beginning inventory + Purchases - Cost of goods sold
= 0 + 6,000 - 2,400 = 3,600