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

Which of the following best explains why a perpetual inventory system is considered an effective means of control over inventory?

It requires less record-keeping than a periodic inventory system.

It provides continuous, real-time records of inventory balances and transactions.

It eliminates the need for physical inventory counts at year-end.

It records purchases only at the end of the accounting period.

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Verified step by step guidance

Understand the concept of a perpetual inventory system: A perpetual inventory system continuously updates inventory records in real-time as transactions occur, such as purchases and sales. This contrasts with a periodic inventory system, which updates inventory records only at specific intervals, typically at the end of an accounting period.

Analyze the advantages of a perpetual inventory system: It provides real-time data on inventory levels, allowing businesses to monitor stock availability and make informed decisions about reordering or managing inventory. This is a key feature that enhances control over inventory.

Compare the perpetual inventory system to the periodic inventory system: A periodic system requires physical inventory counts at the end of the accounting period to determine inventory balances, whereas a perpetual system reduces reliance on such counts by maintaining continuous records.

Evaluate the options provided in the question: The correct explanation should align with the key feature of a perpetual inventory system, which is its ability to provide continuous, real-time records of inventory balances and transactions.

Conclude that the correct answer is: 'It provides continuous, real-time records of inventory balances and transactions,' as this is the primary reason why a perpetual inventory system is considered an effective means of control over inventory.