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

With a perpetual inventory system, which of the following is true regarding the recording of purchases?

Cost of Goods Sold is not affected until the end of the year.

Purchases are recorded in a separate Purchases account and transferred to Inventory at period end.

Purchases are directly recorded in the Inventory account at the time of purchase.

Inventory balances are only updated at the end of the accounting period.

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Verified step by step guidance

Understand the perpetual inventory system: In a perpetual inventory system, inventory records are updated continuously as transactions occur. This system provides real-time tracking of inventory levels and cost of goods sold.

Analyze the options provided: The question lists several statements about how purchases are recorded under a perpetual inventory system. Evaluate each statement based on the characteristics of the perpetual inventory system.

Clarify the correct process: Under a perpetual inventory system, purchases are directly recorded in the Inventory account at the time of purchase. This eliminates the need for a separate Purchases account, as inventory balances are updated immediately.

Explain why other options are incorrect: For example, 'Cost of Goods Sold is not affected until the end of the year' is incorrect because the perpetual system updates Cost of Goods Sold in real-time as sales occur. Similarly, 'Inventory balances are only updated at the end of the accounting period' is incorrect because updates happen continuously.

Summarize the key takeaway: The perpetual inventory system ensures that purchases are directly recorded in the Inventory account, providing accurate and up-to-date inventory tracking throughout the accounting period.