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Washington Warehouse is a small retail business that specializes in the sale of top-of-the-line televisions.This year,the store has begun to carry the Flat TV manufactured by Bass Co.Thus far,Washington has recorded the following transactions involving the Flat TV:

-If Washington uses a perpetual inventory system,the journal entry to record the purchase on January 18th would include which of the following?
A)A debit to the Purchases account for $7,000.
B)A debit to the Cost of Goods Sold for $7,000.
C)A credit to Inventory for $7,000.
D)A debit to Inventory for $7,000.

Question

[The following information applies to the questions displayed below.]
Washington Warehouse is a small retail business that specializes in the sale of top-of-the-line televisions.This year,the store has begun to carry the Flat TV manufactured by Bass Co.Thus far,Washington has recorded the following transactions involving the Flat TV:
 
-If Washington uses a perpetual inventory system,the journal entry to record the purchase on January 18th would include which of the following?
A)A debit to the Purchases account for $7,000. 
B)A debit to the Cost of Goods Sold for $7,000. 
C)A credit to Inventory for $7,000. 
D)A debit to Inventory for $7,000.

Quizplus · Accepted Answer

With a perpetual inventory system, the inventory is constantly updated and tracked. Therefore, when Washington Warehouse purchases the Flat TV from Bass Co., it should debit its Inventory account for the cost of the TVs. Option A is incorrect because Purchases is not affected when using perpetual inventory system. Option B is incorrect because Cost of Goods Sold is only affected when goods are sold. Option C is incorrect because a credit to Inventory decreases its value, whereas the purchase of inventory should increase it.

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