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Perpetual Inventory - Purchases quiz #1 Flashcards

Perpetual Inventory - Purchases quiz #1
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  • What is the primary difference between inventory and supplies in a merchandising company using a perpetual inventory system?
    Inventory consists of goods purchased for resale, while supplies are items used in daily operations and not intended for resale.
  • How is a purchase of inventory on account recorded in a perpetual inventory system?
    The inventory account is debited and accounts payable is credited for the total purchase amount.
  • If a company purchases 500 units at $5 each on account, what is the journal entry in a perpetual inventory system?
    Debit Inventory $2,500; Credit Accounts Payable $2,500.
  • What happens to the inventory and accounts payable accounts when goods are returned to the supplier in a perpetual inventory system?
    Inventory is credited (decreased) and accounts payable is debited (decreased) by the value of the returned goods.
  • How would you record the return of 100 units at $5 each in a perpetual inventory system?
    Debit Accounts Payable $500; Credit Inventory $500.
  • What is a purchase allowance in the context of a perpetual inventory system?
    A purchase allowance occurs when the buyer keeps the goods but receives a price reduction due to issues like low quality.
  • How is a purchase allowance recorded in a perpetual inventory system?
    Accounts payable is debited and inventory is credited by the amount of the price reduction.
  • If 500 units purchased at $5 each are later reduced to $2 each due to a purchase allowance, what is the adjustment entry?
    Debit Accounts Payable $1,500; Credit Inventory $1,500.
  • Does purchasing inventory in a perpetual system affect equity at the time of purchase?
    No, purchasing inventory only affects assets (inventory) and liabilities (accounts payable), not equity.
  • What is the effect on the accounting equation when inventory is purchased on account in a perpetual system?
    Assets (inventory) and liabilities (accounts payable) both increase by the purchase amount, keeping the equation balanced.
  • How does a perpetual inventory system differ from a periodic system in recording purchases?
    A perpetual system records inventory transactions continuously, updating inventory and accounts payable directly with each purchase.
  • What type of account is credited when inventory is purchased on account in a perpetual inventory system?
    Accounts Payable is credited.
  • When a purchase return is made, what is the impact on the inventory and accounts payable balances?
    Both inventory and accounts payable decrease by the value of the returned goods.
  • Why might a company receive a purchase allowance instead of returning goods?
    A company may receive a purchase allowance if the goods are defective or of lower quality but still usable, so they keep the goods at a reduced price.
  • After recording a purchase, a return, and a purchase allowance, how is the final inventory value determined in a perpetual system?
    The final inventory value is the original purchase amount minus the value of returns and any purchase allowances.