Which of the following statements is correct?
A)The perpetual inventory system uses a separate account for Purchase Returns and Allowances.
B)The periodic inventory system continually updates the Inventory and Cost of Goods Sold accounts.
C)The perpetual inventory system requires a closing entry in order to determine Cost of Goods Sold.
D)The Purchases account is used under both the periodic and perpetual inventory systems.
E)Under the periodic inventory system,neither the Cost of Goods Sold account nor the Inventory account is updated on a daily basis.

Question

Quizplus · Accepted Answer

Under the periodic inventory system, inventory and cost of goods sold are not updated continuously but are determined at the end of an accounting period, hence E is correct. Choices A, B, C, and D are incorrect because: A) In a perpetual system, purchase returns are typically recorded directly against inventory, not in a separate purchase returns account. B) It's the perpetual, not the periodic, system that continually updates inventory and cost of goods sold. C) The perpetual system does not require a closing entry to determine cost of goods sold as it is updated continuously. D) The Purchases account is primarily used in the periodic system, not in the perpetual system.

Which of the Following Statements Is Correct