When a company uses the perpetual inventory system ________.
A) purchases of Office Supplies and Equipment that will be used in the day-to-day operations of the business are recorded as debits to Merchandise Inventory.
B) the purchase of merchandise inventory on account is recorded as a debit to Accounts Payable and a credit to Merchandise Inventory.
C) the Merchandise Inventory account is reported as an expense on the income statement.
D) the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers.

Question

Quizplus · Accepted Answer

When a company uses the perpetual inventory system, the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers. This ensures that the inventory account always reflects the current value of the company's inventory. Option A is incorrect because purchases of Office Supplies and Equipment are not recorded as debits to Merchandise Inventory. Option B is incorrect because a purchase of merchandise inventory on account is recorded as a debit to Merchandise Inventory and a credit to Accounts Payable. Option C is incorrect because Merchandise Inventory is a balance sheet account and is not reported as an expense on the income statement.

When a Company Uses the Perpetual Inventory System ________