When a perpetual system is in used and transportation cost is incurred to obtain inventory,the transportation cost is:
A) added to Inventory.
B) reported as Selling, General & Administrative Expense on the income statement.
C) reported as a contra-account that is subtracted from sales revenue when determining net sales.
D) deducted from the Cost of Goods Sold when determining gross profit.

Question

Quizplus · Accepted Answer

In a perpetual inventory system, transportation costs incurred to obtain inventory are added to the cost of inventory and are included in the inventory account. This is because the perpetual inventory system maintains an up-to-date balance of inventory and cost of goods sold accounts. Therefore, option A is the correct answer.

When a Perpetual System Is in Used and Transportation Cost