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Perpetual Inventory - Purchases quiz #1 Flashcards

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Perpetual Inventory - Purchases quiz #1
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  • What is the primary difference between inventory and supplies in a merchandising company using a perpetual inventory system?
    Inventory consists of goods purchased for resale, while supplies are items used in daily operations and not intended for resale.
  • How is a purchase of inventory on account recorded in a perpetual inventory system?
    The inventory account is debited and accounts payable is credited for the total purchase amount.
  • If a company purchases 500 units at $5 each on account, what is the journal entry in a perpetual inventory system?
    Debit Inventory $2,500; Credit Accounts Payable $2,500.
  • What happens to the inventory and accounts payable accounts when goods are returned to the supplier in a perpetual inventory system?
    Inventory is credited (decreased) and accounts payable is debited (decreased) by the value of the returned goods.
  • How would you record the return of 100 units at $5 each in a perpetual inventory system?
    Debit Accounts Payable $500; Credit Inventory $500.
  • What is a purchase allowance in the context of a perpetual inventory system?
    A purchase allowance occurs when the buyer keeps the goods but receives a price reduction due to issues like low quality.
  • How is a purchase allowance recorded in a perpetual inventory system?
    Accounts payable is debited and inventory is credited by the amount of the price reduction.
  • If 500 units purchased at $5 each are later reduced to $2 each due to a purchase allowance, what is the adjustment entry?
    Debit Accounts Payable $1,500; Credit Inventory $1,500.
  • Does purchasing inventory in a perpetual system affect equity at the time of purchase?
    No, purchasing inventory only affects assets (inventory) and liabilities (accounts payable), not equity.
  • What is the effect on the accounting equation when inventory is purchased on account in a perpetual system?
    Assets (inventory) and liabilities (accounts payable) both increase by the purchase amount, keeping the equation balanced.
  • How does a perpetual inventory system differ from a periodic system in recording purchases?
    A perpetual system records inventory transactions continuously, updating inventory and accounts payable directly with each purchase.
  • What type of account is credited when inventory is purchased on account in a perpetual inventory system?
    Accounts Payable is credited.
  • When a purchase return is made, what is the impact on the inventory and accounts payable balances?
    Both inventory and accounts payable decrease by the value of the returned goods.
  • Why might a company receive a purchase allowance instead of returning goods?
    A company may receive a purchase allowance if the goods are defective or of lower quality but still usable, so they keep the goods at a reduced price.
  • After recording a purchase, a return, and a purchase allowance, how is the final inventory value determined in a perpetual system?
    The final inventory value is the original purchase amount minus the value of returns and any purchase allowances.
  • What does it mean to buy goods on credit in the context of a perpetual inventory system?
    To buy goods on credit means to purchase inventory without paying cash immediately, creating an accounts payable liability. The company debits inventory to increase assets and credits accounts payable to increase liabilities.
  • How is purchasing inventory on account recorded in a perpetual inventory system?
    Purchasing inventory on account is recorded by debiting the inventory account for the cost of the goods purchased and crediting accounts payable for the same amount, reflecting the obligation to pay the supplier in the future.
  • In a perpetual inventory system, what is the effect of purchasing inventory on account on the accounting equation?
    Purchasing inventory on account increases assets (inventory) and increases liabilities (accounts payable) by the same amount, with no immediate effect on equity.