Question

A company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account?

a) Returning inventory to the supplier after buying it from the supplier for cash
b) All of these
c) Paying freight costs to deliver goods to a customer
d) Purchasing merchandise on account
e) Selling inventory to a customer for cash

Answer 1

The transaction that neither increases nor decreases a company's inventory account in a perpetual inventory system is returning inventory to the supplier after buying it for cash, as it reverses the initial purchase.

Step-by-step explanation:

The question asks which transaction in a perpetual inventory system neither increases nor decreases the inventory account. The correct answer is: a) Returning inventory to the supplier after buying it from the supplier for cash. This transaction reverses the initial inventory increase that occurred when the inventory was purchased, thus having no net effect on the inventory level. Paying freight costs to deliver goods to a customer does not affect inventory quantity but may impact delivery expense or the cost of goods sold depending on how the company accounts for shipping costs. Purchasing merchandise on account and selling inventory both definitely affect the inventory account; the former increases it and the latter decreases it. These transactions relate to concepts of constant cost, increasing cost, and decreasing cost where they determine how equilibrium price is affected in relation to the supply and demand within a constant-cost industry.