Kelton Inc.purchases inventory for $2,000 and incurs shipping costs of $100 for the goods to be delivered.To record this transaction,the company debits Inventory for $2,000,debits Selling Expenses for $100,and credits Cash for $2,100.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The correct entry for this transaction should be to debit Inventory for $2,100 ($2,000 for the cost of goods and $100 for shipping) and credit Cash for $2,100. By debiting Selling Expenses, the company has incorrectly classified the shipping costs as an expense rather than part of the cost of the inventory. As a result, assets are understated (Inventory should be debited for $2,100, not $2,000), and net income is understated by the amount of the shipping cost ($100).