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Under a perpetual inventory system, when product is sold the inventory records are updated in what way?
AThe inventory balance is increased by the selling price
BThe inventory balance is adjusted only at the period end
CThe inventory on hand is reduced immediately at the time of sale
DNo change is made until a physical count is taken
Answer & Solution
Correct answer: C. The inventory on hand is reduced immediately at the time of sale
1. A perpetual system keeps a current running total of inventory in units and value at all times.
2. When goods are sold, the value of inventory on hand is reduced immediately.
3. Waiting for period end or a physical count describes the periodic system, not perpetual.
4. Inventory is never increased by the selling price; the cost is removed from inventory.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.1 "Introduction", p.92_