Feinstein Company buys designer clothing to sell in its retail stores.Since much of the merchandise comes from Dallas and Europe.Feinstein Company must pay freight charges to get the merchandise shipped in.Which statement is true?

Question

Quizplus · Accepted Answer

Under the periodic system, transportation-in is added to net purchases to determine the cost of goods purchased. This is because under this system, inventory is only counted and updated at the end of the accounting period and all costs associated with getting the merchandise to the store are recorded separately as expenses. Therefore, transportation-in is not added to the inventory account, as in option A, but is instead used to adjust the purchases account. Option B is incorrect as transportation-in is not subtracted from purchases under the periodic system, but is rather added to it. Option C is also incorrect as the buyer has to pay freight charges regardless of the inventory system used.

Feinstein Company Buys Designer Clothing to Sell in Its Retail