Which of the following is not true for a retailer using perpetual inventory system?
A) When merchandise is purchased FOB shipping point, the buyer assumes the risk of any damage in transit.
B) After a physical inventory count, the retailer credits the Inventory account for any missing inventory.
C) When the retailer returns defective merchandise to the manufacturer, they credit Purchase Returns.
D) The Cost of Goods Sold account is closed at the end of the year with a debit to Income Summary.

Question

Quizplus · Accepted Answer

When the buyer is responsible for shipping costs, it is referred to as FOB shipping point. Since inventory is being continuously updated using the perpetual inventory system, management can compare these amounts to a physical count of the inventory and credit the Inventory account for any missing inventory. The Cost of Goods Sold, an expense account, is a temporary account which is closed at the end of the year with a debit to Income Summary. Under the perpetual inventory system, the retailer would credit Inventory rather than Purchase Returns for the return of defective merchandise.

Which of the Following Is Not True for a Retailer