Question

What accounts are in the chart of accounts of a perpetual inventory system?

Which inventory method will yield the least net income?

If you owned a merchandising business, how would you decide which credit cards, if any, to accept?

Answer 1

Answer

The accounts which are generally on chart of accounts of a perpetual inventory system are as follows:

1. Inventory account        

Debited at the time of purchase, when expenses such as freight-in, insurance etc. are paid , when goods are returned by the customer & Credited at the time when goods are returned to the supplier and when goods are sold to customer.

2. Accounts Payable account

Debited at the time when goods are returned to the supplier & Credited when goods are purchased.

3. Cash account

Credited when expenses such as freight-in, insurance etc. are paid.

4. Accounts receivable account

Debited when goods are sold to customer & Credited when goods are returned by the customer.

5. Sales account

Debited when goods are returned by the customer & Credited when goods are sold to customer.

6. Cost of goods sold

Debited when goods are sold to customer & Credited when goods are returned by the customer.

Which inventory method will yield the least net income?

Answer: Under LIFO (Last in first out) method the last inventory goods received or purchased will be the first inventory to sell. In period of inflation or rising prices, LIFO will result in the lowest cost of ending inventory, highest cost of goods sold, and therefore the lowest net income. However, in the situation of falling prices, LIFO method will generate highest net income.

If you owned a merchandising business, how would you decide which credit cards, if any, to accept?

Answer: Acceptability of credit card will be decided on the basis of

- Handiness of consumers using credit cards.

-Cards that the majority of buyers carry.

-Cost involved for merchandiser (that is credit card fees) as an expense.