When merchandise inventory is purchased under a periodic system, which account is debited?
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A. B. C. D.D
The periodic inventory system records purchases of merchandise inventory in an income statement account called Purchases.
When merchandise inventory is purchased under a periodic system, the account that is debited depends on the specific transaction being recorded.
In a periodic inventory system, the company does not continuously update the inventory account for each individual purchase or sale. Instead, it periodically adjusts the inventory account based on a physical count of the inventory. The periodic system is commonly used by small businesses or those with less frequent inventory turnover.
Now let's analyze each answer choice:
A. Accounts Payable: Accounts Payable represents the amount owed by the company to its suppliers or vendors for purchases made on credit. When merchandise inventory is purchased on credit, the company would initially record the transaction by debiting the Accounts Payable account. However, under the periodic system, the specific purchase is not directly recorded in the inventory account.
B. Cash: If the company purchases merchandise inventory and pays for it immediately in cash, the Cash account would be debited. However, under the periodic system, the cash payment itself is not directly recorded in the inventory account.
C. Merchandise Inventory: Merchandise Inventory is the account that represents the cost of goods held for sale by the company. When merchandise inventory is purchased under a periodic system, the specific purchase is not directly recorded in the inventory account. Instead, it is initially recorded in a separate account called Purchases.
D. Purchases: Purchases is a temporary account used in the periodic system to accumulate the cost of merchandise inventory purchased during an accounting period. When merchandise inventory is purchased, the company would debit the Purchases account to record the transaction. This account is used to track the total cost of inventory purchases, which will be later used to calculate the cost of goods sold (COGS) at the end of the accounting period.
Therefore, in the given scenario, the correct answer is D. Purchases, as it represents the account that is debited when merchandise inventory is purchased under a periodic system.