Davis Company sold inventory on account. Assuming Davis is using the periodic inventory method recognizing this event will increase the balance in the accounts receivable account.
The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical count of the inventory is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases during the period and deducts ending inventory to derive the cost of goods sold (COGS).
The cost of goods sold, commonly referred to as COGS, is a fundamental income statement account, but a company using a periodic inventory system will not know the amount for its accounting records until the physical count is completed.
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