Question

Under a perpetual inventory system, when a shortage is discovered a.Merchandise Inventory is debitedb.Cost of Merchandise Sold is creditedc.Inventory Shortages is creditedd.Merchandise Inventory is credited

Answer 1

Answer: d. Merchandise Inventory is credited

Explanation: merchandise Inventory is a current asset showing the cost of goods on hand and available for sale at any given moment in time and is continuously updated to reflect items on hand under the perpetual inventory system. Under the perpetual inventory system, the Merchandise Inventory account is debited and credited for each purchase and sale respectively. This effectively shows the current balance in the account at all time. However, during shortages, the Merchandise Inventory is credited.