A firm uses the periodic inventory method.Which of the following entries would be made to record a $1 100 purchase of inventory on credit,including GST?
A)The accounting entry would be a $1 000 debit to Inventory,a $100 debit to GST clearing and a $1 100 credit to Accounts payable.
B)The accounting entry would be a $1 100 debit to Accounts payable and a $1 100 credit to Purchases.
C)The accounting entry would be a $1 000 debit to Purchases,a $100 debit to GST clearing and a $1 100 credit to Accounts payable.
D)The accounting entry would be a $1 100 debit to Accounts payable,a $1 000 credit to Inventory and a $100 credit to GST clearing.

Question

Quizplus · Accepted Answer

The firm is using the periodic inventory method, which means that the cost of goods sold is determined at the end of the accounting period by subtracting the ending inventory from the sum of the beginning inventory and the purchases.

To record the purchase of inventory on credit, we need to debit the Inventory account and credit the Accounts payable account. However, the purchase also includes GST, which needs to be recorded separately.

The GST amount is credited to the GST clearing account, which is a temporary account used to track the GST payable or receivable.

Therefore, the correct entry is a $1,000 debit to Purchases (the cost of the inventory), a $100 debit to GST clearing (the GST amount), and a $1,100 credit to Accounts payable (the total amount owed for the purchase).

A Firm Uses the Periodic Inventory Method