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CLEP Financial Accounting Exam Prep

Category - CLEP Financial Accounting Test Practice Questions

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If Larry was using a perpetual inventory system, how would he record the purchase of $20,000 of inventory on account?
  1. A credit to sales
  2. A debit to sales
  3. A debit to merchandise inventory
  4. A credit to merchandise inventory
  5. A credit to purchases on account
Explanation
Answer - C - The purchase of inventory on account would be recorded as a debit to merchandise inventory.

Key Takeaway: With a perpetual inventory system, the inventory account is updated after every purchase or sale and quantities are updated continuously. A purchase would be an addition to the merchandise inventory and this account is increased with a debit entry.
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