ECONOMICS

Detailed explanation-1: -When you sell products in a perpetual inventory system, the expense account increases and grows the costs of sales. Also called the cost of goods sold (COGS), the costs of sales are the direct expenses from the production of goods during a period.

Detailed explanation-2: -When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to Purchases. Gross profit minus selling expenses equals net income. Customer Refunds Payable is an account used to record merchandise returns from customers.

Detailed explanation-3: -When a sale occurs under perpetual inventory systems, two entries are required: one to recognize the sale, and the other to recognize the cost of sale. For the cost of sale, Merchandise Inventory and Cost of Goods Sold are updated. Under periodic inventory systems, this cost of sale entry does not exist.

Detailed explanation-4: -It is false that in a perpetual inventory system, when merchandise is purchased, it is debited to an account called purchases. The purchase journal is used in the periodic inventory system to help determine the value of ending inventory and the cost of goods sold.