MANAGEMENT

BUISENESS MANAGEMENT

MERCHANDISING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Perpetual Inventory System
A
taking a physical count on inventory on hand.
B
inventory available for sale is continuously updated.
C
inventory is verified on periodic system.
D
incurred directly in the selling of merchandise.
Explanation: 

Detailed explanation-1: -Perpetual inventory is a continuous accounting practice that records inventory changes in real-time, without the need for physical inventory, so the book inventory accurately shows the real stock. Warehouses register perpetual inventory using input devices such as point of sale (POS) systems and scanners.

Detailed explanation-2: -A perpetual inventory system is a system used to track and record stock levels, in which every purchase and sale of stock is logged automatically and immediately. In this system, every time a transaction takes place, the software records a change in inventory levels in real-time.

Detailed explanation-3: -With the perpetual inventory system, the inventory account is updated after each sale or purchase. If ending inventory is understated, then cost of goods sold is understated. When merchandise is sold FOB destination, the seller is responsible for the shipping costs.

Detailed explanation-4: -Answer and Explanation: The statement is TRUE. In the perpetual inventory system, inventory purchases are recorded in the inventory asset balance sheet account, and the income statement expense (Cost of Goods Sold) is only recorded as and when goods are sold.

Detailed explanation-5: -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.

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