Multiple Choice
Which of the following is the correct journal entry for the purchase of inventory on account using the perpetual inventory system?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
The purchase of raw materials on account in a process costing system is recorded with a:
A
Debit to Work in Process Inventory and credit to Cash
B
Debit to Accounts Payable and credit to Raw Materials Inventory
C
Debit to Raw Materials Inventory and credit to Accounts Payable
D
Debit to Manufacturing Overhead and credit to Raw Materials Inventory
Verified step by step guidance1
Understand the context: In a process costing system, the purchase of raw materials on account refers to acquiring materials needed for production, where payment is deferred and recorded as a liability (Accounts Payable).
Identify the correct accounts: When raw materials are purchased, they are recorded as an asset (Raw Materials Inventory) because they will be used in production. The liability (Accounts Payable) is credited to reflect the obligation to pay for these materials later.
Apply the accounting principle: The double-entry accounting system requires that every transaction affects at least two accounts. In this case, the debit increases the Raw Materials Inventory account, and the credit increases the Accounts Payable account.
Write the journal entry: The journal entry for this transaction would be: Debit Raw Materials Inventory (to increase the asset) and Credit Accounts Payable (to increase the liability).
Review the options provided: Compare the options given in the problem and confirm that the correct answer aligns with the journal entry described above: Debit to Raw Materials Inventory and Credit to Accounts Payable.
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