Inventory for a manufacturing company includes raw materials, work in process, and finished goods. Inventory for a merchandising company includes goods primarily in finished form ready for sale. In a perpetual inventory system, inventory is continually adjusted for each change in inventory. Cost of goods sold is adjusted each time goods are sold or returned by a customer. A periodic inventory system adjusts inventory and records cost of goods sold only at the end of a reporting period.

Knowledge Check 01 Barrington Company began the year with inventory of $100,000. During the year, the company purchased inventory in the amount of $750,000. Sales revenue for the year totaled $800,000. A physical count determined the cost of inventory at the end of the year to be $90,000. The adjusting entry needed at the end of the year under a periodic inventory system includes a:

Multiple Choice

• Debit to Cost of Goods Sold for $760,000.

• Debit to Cost of Goods Sold for $850,000.

• Debit to Purchases for $750,000.

• Credit to Cost of Goods Sold for $760,000

• Credit to Cost of Goods Sold for $850,000