Multiple Choice
When a perpetual inventory system is used, which of the following accounts is directly updated with each purchase of inventory?
26
views
4. Merchandising Operations
Perpetual Inventory - Purchases
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Using the perpetual inventory system, which account is directly debited when inventory is purchased for cash?
A
Inventory
B
Purchases
C
Cost of Goods Sold
D
Accounts Payable
Verified step by step guidance1
Understand the perpetual inventory system: In this system, inventory accounts are updated continuously to reflect purchases and sales. This means that the inventory account is directly affected whenever inventory is purchased or sold.
Identify the transaction type: The problem specifies that inventory is purchased for cash. This indicates that the payment is made immediately, and no accounts payable are involved.
Determine the account to be debited: When inventory is purchased under the perpetual inventory system, the 'Inventory' account is directly debited to reflect the increase in inventory assets.
Clarify why other options are incorrect: 'Purchases' is used in the periodic inventory system, not the perpetual system. 'Cost of Goods Sold' is only affected when inventory is sold, not purchased. 'Accounts Payable' is used when inventory is purchased on credit, not for cash.
Conclude the correct account: Based on the perpetual inventory system and the cash purchase, the correct account to be debited is 'Inventory'.
4:20mWatch next
Master Perpetual Inventory:Purchases with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Perpetual Inventory - Purchases practice set
Problem sets built by lead tutorsExpert video explanations