Which Of The Following Is A True Statement About Inventory Systems?

The correct option of this multiple choice question (mcq) is (B), as under Perpetual Inventory System (PIS), each time purchases and sales made affect Inventory Account (IA). Separate accounts for purchases, purchases returns & allowances and purchases discounts are not maintained but these accounts are recorded in inventory account.

Under perpetual Inventory System, when goods purchased on account, then we debit IA rather than purchases account and credit account.

Under this IS, freight in / transportation in are added to inventory account by debited and not in purchases account.

In case of goods returned to supplier / vendor (purchases returns), allowances and discounts received from supplier (purchases allowances and purchases discounts), IA and not these accounts are separately recorded.

Whenever sales made to customers on account, then cost of goods sold account is debited and IA is credited

That is why more detail inventory records are required in this system.

The option A is incorrect choice here as under periodic inventory system separate accounts are maintained for merchandise or goods purchased. So, once goods purchased, purchases account is debited and not IA. Ending Inventory (EI) is calculated once after a specific period, which is the end of the accounting cycle

Cost of goods sold is calculated once at the end of accounting cycle and not after each sale. It is calculated by adding beginning inventory to purchases and then subtracting EI from this sum, which is cost of goods available for sale.  

So, this system does not require more details of inventory records as compare to perpetual inventory system.

The option C is wrong choice here as cost of goods sold is determined at each occurs under PIS.

The option D is not correct choice here as cost of goods sold is determined at the end of the accounting period under periodic inventory system.