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

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When entering inventory transactions under the perpetual inventory system, which account is debited when inventory is purchased for cash?

Sales Revenue

Inventory

Cost of Goods Sold

Accounts Payable

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Verified step by step guidance

Understand the perpetual inventory system: In this system, inventory accounts are continuously updated to reflect purchases and sales. This means that every transaction involving inventory directly affects the inventory account.

Identify the nature of the transaction: The problem states that inventory is purchased for cash. This indicates that the company is acquiring inventory and paying for it immediately, rather than on credit.

Determine the account to be debited: When inventory is purchased, the Inventory account is debited to reflect the increase in the company's assets (inventory). This is because inventory is an asset, and debiting the account increases its balance.

Consider the account to be credited: Since the purchase is made for cash, the Cash account is credited to reflect the decrease in the company's cash balance. This is the corresponding entry in the transaction.

Review the options provided: Among the options, 'Inventory' is the correct account to be debited, as it directly reflects the increase in inventory due to the purchase. The other options (Sales Revenue, Cost of Goods Sold, Accounts Payable) are not relevant to this specific transaction.