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Under the perpetual system, a merchandiser purchases 50 items on account for $10 each for resale. What is the correct journal entry?
ADebit Merchandise Inventory $500; credit Accounts Payable $500
BDebit Purchases $500; credit Accounts Payable $500
CDebit Accounts Payable $500; credit Merchandise Inventory $500
DDebit Cost of Sales $500; credit Merchandise Inventory $500
Answer & Solution
Correct answer: A. Debit Merchandise Inventory $500; credit Accounts Payable $500
1. Cost of the purchase = 50 x $10 = $500.
2. Under the perpetual system, purchases for resale are recorded directly in Merchandise Inventory (debit to increase the asset).
3. Buying on account increases the liability Accounts Payable (credit).
4. Purchases is a periodic-system account, not perpetual; reversing the debit/credit (option C) would record a return.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.3 "Basic Merchandising Transactions (Perpetual Inventory System)", p.95_
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