Under a perpetual inventory system, acquisition of merchandise for resale is debited to the
a.Inventory account.
b.Purchases account.
c.Supplies account.
d.Cost of Goods Sold account.
The correct answer and explanation is :
Correct Answer: A. Inventory account.
Under a perpetual inventory system, the acquisition of merchandise for resale is debited to the Inventory account. This system continuously updates inventory records in real-time for each purchase or sale transaction.
Explanation:
The perpetual inventory system maintains an ongoing record of inventory balances. When a company purchases merchandise for resale, the cost of the inventory is debited to the Inventory account rather than using a separate Purchases account. This method ensures that inventory levels and costs are always up to date.
Why the Inventory Account is Used:
- Continuous Tracking
The perpetual system continuously updates inventory records, reflecting real-time changes whenever merchandise is bought or sold. This eliminates the need for periodic physical counts to determine the cost of goods available. - Accurate Financial Reporting
Since inventory is updated in real-time, financial statements accurately reflect inventory values and cost of goods sold (COGS) at any given moment. This improves decision-making for management. - Automation and Efficiency
Modern accounting and inventory management systems automate inventory tracking, reducing manual errors and providing instant reports on stock levels.
Why Other Options Are Incorrect:
- B. Purchases Account
This is used in the periodic inventory system, not the perpetual system. Under periodic inventory, purchases are recorded separately, and inventory is updated at the end of an accounting period. - C. Supplies Account
Supplies account records office or operational supplies, not merchandise inventory. - D. Cost of Goods Sold Account
The COGS account is debited only when inventory is sold, not when it is acquired.
Thus, under a perpetual inventory system, merchandise acquisition is properly recorded by debiting the Inventory account to maintain accurate and real-time inventory tracking.