In A Perpetual Inventory System, The Inventory Account Is Used In Each Of The Following Except The Entry To Record

The correct option of this multiple choice question (mcq) is (c), as in Perpetual Inventory System (PIS), payment of freight on goods sold does not affect Inventory Account (IA). It is freight out which is treated as indirect expense, so it is not the part of production costs or acquisition of merchandise or goods as this cost (freight out) is incurred after the goods sold to deliver the goods at the doorstep of customer’ s destination and not to the warehouse.

The entry to record for freight out paid from the point view of company’s business is shown below:

                                             Freight Out Exp. a/c  XXX

                                                                               Cash a/c XXX

                                                (Freight Out Paid On Goods Sold)

The option (a) is incorrect choice here as goods or merchandise purchased on account / credit resulted in the debit to inventory account and credit to accounts payable account. So, this Business Transaction affects IA, as shown below:

                                                     IA a/c XXX

                                                                Accounts Payable a/c XXX

                                                       (Goods Purchased On Account)

The option (b) is also wrong choice here as goods purchased returned to supplier affects IA as goods on hand are decreased in the warehouse, so the entry to record is to debit accounts payable account / sundry creditors account and credit IA, as shown below:

                                     Accounts Payable a/c XXX

                                                                         IA a/c XXX

                                     (Goods Purchased Returned To Supplier)

The option (d) is an incorrect choice here as payment made to creditors within the discount period makes possible for the company to avail the purchases discount and this affects IA, as the payment to be made for goods purchased on account from supplier, is reduced. So, cash account and IA are credited and accounts payable account is debited as shown in the below entry

                                       Accounts Payable a/c XXX

                                                                           Cash a/c XXX

                                                                            IA a/c XXX

                          (Paid To Supplier For Goods Purchased Within Discount Period)