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

When a perpetual inventory system is used, which of the following accounts is directly updated with each purchase of inventory?

Cost of Goods Sold

Sales Revenue

Inventory

Purchases

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Verified step by step guidance

Understand the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. This ensures that the inventory account always shows the current balance.

Identify the accounts involved: The perpetual inventory system directly updates the 'Inventory' account with each purchase of inventory, rather than using a separate 'Purchases' account as in a periodic inventory system.

Clarify why 'Cost of Goods Sold' is not updated with purchases: The 'Cost of Goods Sold' account is updated when inventory is sold, not when it is purchased. This reflects the cost of inventory that has been sold to customers.

Clarify why 'Sales Revenue' is not updated with purchases: 'Sales Revenue' is updated when a sale occurs, representing the income earned from selling goods or services. It is unrelated to inventory purchases.

Conclude that the correct account updated with each purchase in a perpetual inventory system is 'Inventory': This account directly reflects the value of inventory on hand and is adjusted for purchases, sales, and other inventory changes.