Q5-8RQ - Horngren'S Financial And Managerial Accounting

Question

What account is debited when recording a purchase of inventory when using the perpetual inventory system?

Step-by-Step Solution

Answer

When the perpetual inventory system is used, the merchandise inventory account is debited at the time of purchase.

Process of Accounting under Perpetual Inventory System

Both inventory systems of accounting record the transactions differently in the books of accounts. The periodic inventory system uses a sales and purchases account, while the perpetual inventory system uses a merchandise inventory account. 

Recording of purchase of inventory under a perpetual inventory system

When the business entities use the perpetual inventory system, the merchandise inventory account is debited or credited at the time of purchase or sale of inventory. 

The journal entry for inventory purchase is as follows:

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Merchandise Inventory	XXX
	Cash/Accounts payable		XXX
	(To record the purchase of inventory)