Multiple Choice
When a perpetual inventory system is used, which of the following accounts is directly updated with each purchase of inventory?
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4. Merchandising Operations
Perpetual Inventory - Purchases
Multiple Choice
In a perpetual inventory system, to buy goods on credit means to record a purchase where payment will be made later. Which journal entry correctly records the purchase of merchandise on account?
A
Debit Inventory; credit Cash.
B
Debit Inventory; credit Accounts Payable.
C
Debit Accounts Payable; credit Inventory.
D
Debit Purchases; credit Accounts Payable.
Verified step by step guidance1
Understand that in a perpetual inventory system, every purchase of merchandise is immediately recorded by increasing the Inventory account, reflecting the current stock on hand.
Recognize that buying goods on credit means the company has not paid cash yet, so the liability account 'Accounts Payable' must be credited to show the amount owed to the supplier.
Recall the basic accounting rule: debits increase assets and expenses, while credits increase liabilities and equity. Since Inventory is an asset, it is debited to increase it.
Since Accounts Payable is a liability, it is credited to increase the amount the company owes for the purchase made on account.
Therefore, the correct journal entry to record a purchase of merchandise on credit in a perpetual inventory system is: Debit Inventory; Credit Accounts Payable.
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