question archive Analyze the following T-account in the ledger of Gibbs Company
Analyze the following T-account in the ledger of Gibbs Company
Subject:BusinessPrice:2.88 Bought3
Analyze the following T-account in the ledger of Gibbs Company.
Merchandise Inventory 5,000 400
If $5,000 in the Inventory account represents merchandise purchased from a supplier, we can assume the company uses the
- perpetual inventory method and $400 may represent cost of goods sold.
- perpetual inventory method and $400 may represent a purchase return.
- perpetual inventory method and $400 may represent a purchase allowance.
- All of these answer choices are correct.
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Answer: All of these answer choices are correct.
Under the perpetual inventory system, all deductions such as purchase returns, purchase allowances and purchase discounts and sale of inventory are recorded as a credit to the inventory account. Also, all increases such as the the purchase of inventory are also recorded as a debit to the inventory account. Thus, the $400 credited to the inventory account could be treated as a sale, a purchase return, purchase allowance or purchase discount.
