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The journal entry to record the use of indirect materials in process costing is to:
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Which of the following is the correct journal entry for the purchase of inventory on account using the perpetual inventory system?
A
Debit Accounts Payable; Credit Inventory
B
Debit Purchases; Credit Accounts Payable
C
Debit Inventory; Credit Accounts Payable
D
Debit Inventory; Credit Cash
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Understand the perpetual inventory system: In this system, inventory is continuously updated to reflect purchases and sales. When inventory is purchased, it is recorded directly in the Inventory account rather than a Purchases account.
Identify the transaction type: The problem specifies that inventory is purchased on account, meaning the company has not paid cash but instead owes the supplier (Accounts Payable).
Determine the accounts involved: Since inventory is purchased, the Inventory account is debited to increase its balance. Accounts Payable is credited to reflect the liability incurred.
Apply the journal entry format: In a journal entry, debits are listed first, followed by credits. The correct entry for this transaction is: Debit Inventory; Credit Accounts Payable.
Review the options provided: Compare the correct journal entry to the options given in the problem. The correct answer matches 'Debit Inventory; Credit Accounts Payable'.
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