Question

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a a. credit to Inventory b. credit to Customer Refunds Payable c. debit to Inventory d. debit to Cash

Answer 1

Answer:

c. Debit to Merchandise Inventory.

Explanation:

A perpetual inventory system is a type of inventory management that continuously records in real-time the amount of inventory sold or purchased through the use of enterprise software or technological software applications such as a point of sale (POS).

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes debit to merchandise inventory. Merchandise inventory is a record of stock (goods) that a wholesaler or retailer purchases and are willing to resell to the consumers at a higher selling price. The merchandise inventory should be classified as a current asset on the balance sheet.

Hence, a merchandise inventory is recorded as an asset by crediting accounts payable while debiting the inventory account.

Also, note that all purchases of merchandise should be debited to the account of merchandise inventory while merchandise sold should be debited to cost of merchandise sold or as credit to merchandise inventory when the perpetual inventory system is being used by an organization.