Under A Perpetual Inventory System, Assets Purchased For Resale Are Recorded In Which Of The Following Accounts?

The correct option of this multiple choice question (mcq) is (b), as under Perpetual Inventory System, assets or goods or merchandises purchased from suppliers for cash or on account are considered as the parts of inventory account unlike under periodic inventory system these are recorded separately in the books of accounts (as purchases account) of company’s business.

For example, if the company purchased assets of $5,000 from suppliers for cash and decided not to use in the business but to resale these in the market for the purpose of earning revenues for the business. The journal entry to record under perpetual inventory system is shown below:

                                                   Inventory a/c  $5,000

                                                                     Cash a/c  $5,000

                             (Assets Purchased For Resale Purposes From Vendor For Cash)

If the company uses the periodic inventory system, then we debit purchases account and credit cash account.

The option (a) is incorrect choice here as supplies are current assets to be consumed in the business and not for resale purposes. It is to be noted that supplies consumed are considered expenses and recorded in the income statement for the current accounting period while supplies on hand are current assets and recorded on balance sheet.

The option (c) is also wrong choice here as equipment are fixed assets / non-current assets to be used in the business for more than one year. Equipment has physical existence and can be touched and seen. Example include computers, machinery, motor, trucks, etc. Equipment is recorded on the balance sheet under fixed assets.

The option (d) is not correct option as it shows Intangible Assets which have no physical existence and are exclusive legal rights of the business to use or sell an invention for more than one year. Only the company uses these rights as these are granted only to it. So, these are protected legal rights disallowed others to use, make or sell them. Patents are recorded on balance sheet under non-current assets section.