Question

Under a perpetual inventory system, when goods are purchased for resale by a company:

(a) purchases on account are debited to Inventory.
(b) purchases on account are debited to Purchases.
(c) purchase returns are debited to Purchase Returns and Allowances.
(d) freight costs are debited to Freight-Out.

Answer 1

The correct option is A, purchases on account are debited to Inventory

Step-by-step explanation:

Under the perpetual inventory system,items purchased for resale are posted directly to inventory asset account,hence at the end of the period,cost of inventory sold is credited to inventory account (in the balances sheet) and debited to costs of good sold(in the income statement) such that the gross profit can be ascertained.

The inventory left unsold(closing inventory) needs to credited to costs of good sold and debited to inventory account.