If a company uses a perpetual inventory system when recording its purchases and sales of inventory, the entry to record the freight charges on a purchase of merchandise on account would include:
A)a debit to Merchandise Inventory and a credit to Accounts Payable
B)a debit to Cost of Goods Sold and a credit to Merchandise Inventory
C)a debit to Accounts Payable and a credit to Merchandise Inventory
D)a debit to Merchandise Inventory and a credit to Cost of Goods Sold

Question

Quizplus · Accepted Answer

Under a perpetual inventory system, freight charges on purchases are added to the cost of inventory. Therefore, the entry to record freight charges would include a debit to Merchandise Inventory (increasing the inventory cost) and a credit to Accounts Payable (reflecting the liability to pay the freight charges).

If a Company Uses a Perpetual Inventory System When Recording