Multiple Choice
Under a perpetual inventory system, what journal entry should a company record when it purchases inventory on account?
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4. Merchandising Operations
Perpetual Inventory - Purchases
Multiple Choice
In a perpetual inventory system, how are purchases of inventory recorded?
A
They are recorded in a Purchases account and later transferred to Inventory.
B
They are only recorded at the end of the accounting period.
C
They are not recorded until the inventory is sold.
D
They are directly added to the Inventory account.
Verified step by step guidance1
Understand the perpetual inventory system: In this system, inventory records are updated continuously as transactions occur, rather than waiting until the end of the accounting period.
Recognize the key feature of the perpetual inventory system: Purchases of inventory are directly added to the Inventory account, reflecting real-time updates to inventory levels.
Distinguish this from the periodic inventory system: In a periodic system, purchases are recorded in a Purchases account and inventory is updated only at the end of the accounting period.
Note that in the perpetual system, the Inventory account is debited when inventory is purchased, and credited when inventory is sold or adjusted.
Understand the implications: This method provides more accurate and timely information about inventory levels, which is useful for decision-making and tracking inventory movements.
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