Gools,Inc.buys designer clothing to sell in its retail stores.Since much of the merchandise comes from Europe,the company must pay freight charges.Which of the following statements must be true?

Question

Quizplus · Accepted Answer

Under the periodic system, transportation-in is included in the total cost of purchases used to determine the cost of goods sold. This means that the freight charges are added to the cost of the inventory and are reflected in the cost of the goods that are eventually sold. Option A is incorrect because transportation-in is not added to the inventory account, but rather included in the cost of goods sold calculation. Option B is incorrect because transportation-in is not subtracted from purchases, but rather added to the cost of the inventory. Option C is incorrect because buyers must still pay freight charges regardless of whether they use a periodic or perpetual inventory system.

Gools,IncBuys Designer Clothing to Sell in Its Retail Stores