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

Periodic Inventory - Purchases

Financial Accounting

4. Merchandising Operations

Periodic Inventory - Purchases

Previous problem

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Multiple Choice

When a periodic inventory system is used, how are purchases of inventory typically recorded?

Purchases are not recorded until the end of the accounting period.

Purchases are recorded directly in the Inventory account.

Purchases are recorded as an expense immediately.

Purchases are recorded in a Purchases account, not directly in the Inventory account.

Previous problem

Verified step by step guidance

Understand the periodic inventory system: In a periodic inventory system, inventory levels are updated at the end of the accounting period rather than continuously. This system relies on physical counts to determine the ending inventory and cost of goods sold.

Recognize how purchases are recorded: Under the periodic inventory system, purchases of inventory are recorded in a temporary account called the Purchases account. This account accumulates the cost of inventory acquired during the period.

Distinguish the Purchases account from the Inventory account: Unlike a perpetual inventory system, where purchases are directly recorded in the Inventory account, the periodic system uses the Purchases account to track inventory acquisitions separately from the Inventory account.

Understand the role of the Purchases account: At the end of the accounting period, the balance in the Purchases account is combined with beginning inventory and adjusted for ending inventory to calculate the cost of goods sold (COGS). This process ensures accurate financial reporting.

Review the accounting treatment: Purchases are not recorded as an expense immediately. Instead, they are treated as an asset (inventory) until sold. The expense is recognized as COGS when the inventory is sold, aligning with the matching principle in accounting.