Using the perpetual inventory system, which account is directly debited when inventory is purchased for cash?

• A. Inventory
• B. Purchases
• C. Cost of Goods Sold
• D. Accounts Payable

Answer: (A)

Verified step by step guidance

1. Understand the perpetual inventory system: In this system, inventory accounts are updated continuously to reflect purchases and sales. This means that the inventory account is directly affected whenever inventory is purchased or sold.
2. Identify the transaction type: The problem specifies that inventory is purchased for cash. This indicates that the payment is made immediately, and no accounts payable are involved.
3. Determine the account to be debited: When inventory is purchased under the perpetual inventory system, the 'Inventory' account is directly debited to reflect the increase in inventory assets.
4. Clarify why other options are incorrect: 'Purchases' is used in the periodic inventory system, not the perpetual system. 'Cost of Goods Sold' is only affected when inventory is sold, not purchased. 'Accounts Payable' is used when inventory is purchased on credit, not for cash.
5. Conclude the correct account: Based on the perpetual inventory system and the cash purchase, the correct account to be debited is 'Inventory'.