Question

Question 4

1. Which of the following statements is correct?

   		The purchases account is used under both the periodic and perpetual inventory systems.
   		The perpetual inventory system continually updates the inventory, purchase discounts, and cost of goods sold accounts.
   		Under the periodic inventory system, neither the cost of goods sold account nor the inventory account is computed on a daily basis.
   		The perpetual inventory system requires a closing entry in order to determine cost of goods sold before cost of goods sold can be closed to the income summary account.
   		Purchase returns and allowances are accounted for separately under the perpetual inventory system but are combined into the inventory account under the periodic inventory system.

Answer 1

The following statement is correct:
Under the periodic inventory system, neither the cost of goods sold account nor
the inventory account is computed on a daily basis.
Because in periodic inventory system the inventory account and cost of goods
sold account in-between physical inventories
Explanation for other statements
The purchase account is used under both the periodic and perpetual inventory systems
In the above statement given purchase account only but Cost of goods sold account also
is used
In perpetual inventory system continually updates the inventory, purchase discounts, and
cost of goods sold accounts.
If the purchase discount is trade discount there is no entry in our books of accounts and if any
cash discount given it is come under discounts received account.
The perpetual inventory system requires closing entry in order to determine cost of goods sold
before cost of goods sold can be closed to the income summary account.
if closing entry requires it requires for both periodic inventory system and perpetual inventory system
The only difference between Periodic and Perpetual system of accounting is the former system of
accounting entered in records the inventory in few time a year or every month. In perpetual system
accounting in real time. But the entries in the same accounts.So the statement is incorrect