Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Perpetual Inventory - Purchases

Financial Accounting

4. Merchandising Operations

Perpetual Inventory - Purchases

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Multiple Choice

Which of the following transactions will require a credit to the Inventory account in a perpetual inventory system?

Return of inventory purchased from a supplier

Payment of freight-in on purchased inventory

Purchase of inventory on account

Sale of inventory to a customer

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Verified step by step guidance

Understand the perpetual inventory system: In a perpetual inventory system, inventory is continuously updated for purchases, sales, and returns. Each transaction affects the Inventory account directly.

Analyze the transaction 'Sale of inventory to a customer': When inventory is sold to a customer, the Inventory account is credited to reduce the balance, as the goods are no longer part of the company's inventory.

Relate the credit entry to the cost of goods sold (COGS): The reduction in inventory corresponds to the cost of goods sold, which is recorded as an expense. This ensures the accounting equation remains balanced.

Compare other transactions: For example, 'Return of inventory purchased from a supplier' would involve a debit to the Inventory account, 'Payment of freight-in on purchased inventory' would increase the cost of inventory (debit), and 'Purchase of inventory on account' would also involve a debit to Inventory.

Conclude that the correct transaction requiring a credit to the Inventory account is 'Sale of inventory to a customer,' as it decreases the inventory balance in the perpetual inventory system.