Which of the following best describes how purchases from suppliers are recorded under the periodic inventory system?

• A. Purchases are not recorded until the goods are sold.
• B. Purchases are recorded in a separate 'Purchases' account and not directly in the Inventory account.
• C. Purchases are immediately added to the Inventory account as they occur.
• D. Purchases are only recorded at the end of the accounting period.

Answer: (B)

Verified step by step guidance

1. Understand the periodic inventory system: In this system, inventory is updated periodically, typically at the end of the accounting period, rather than continuously as transactions occur.
2. Recognize how purchases are treated: Under the periodic inventory system, purchases are recorded in a separate 'Purchases' account rather than directly in the Inventory account. This is because inventory updates are deferred until the end of the period.
3. Distinguish from perpetual inventory system: In a perpetual inventory system, purchases are immediately added to the Inventory account as they occur, which is different from the periodic system.
4. Clarify timing of recording: Purchases are recorded when they occur, but the Inventory account itself is updated only at the end of the accounting period based on a physical count and adjustments.
5. Summarize the correct answer: The correct description is that purchases are recorded in a separate 'Purchases' account and not directly in the Inventory account under the periodic inventory system.