Question

Which of the following statements concerning the journal entries for inventory transactions are correct in a periodic inventory system?

1. Debit Purchase account to record purchase of inventory.

2. Debit Inventory account to record purchases of inventory.

3. Debit Cost of Goods Sold account when inventory is sold.

4. Credit Inventory account when inventory is sold.

Why is only 1 correct?

Answer 1

Periodic inventory system records the inventory balance once in a period

under this system the closing entries for inventory is passed

by debiting closing inventory and crediting purchase of inventory account

generally when a purchase is made all the entries are recorded in the purchase account only and at the end of the year it adjusted against the closing stock cost of goods sold.

only goods purchased will be recorded in the purchase account

there is no specific reason for recording in purchase account, an account is created for purchase of goods and every thing related to that goods is adjusted in that account only

when purchased on credit

Purchases Account A/c Dr.

To Trade payables A/c

when purchased on cash

Purchases A/c Dr  

To Cash A/c