Question

question 4 of 7
a company purchases merchandise using cash for $750. what journal entry is used to record this transaction, assuming the company uses a periodic inventory system?
select an answer from the options below.
a dr. merchandise inventory $750 cr. cash $750
b dr. purchases $750 cr. merchandise inventory $750
c dr. cash $750 cr. accounts payable $750

Explanation:

In a periodic inventory system, purchases are recorded in the Purchases account. When merchandise is bought for cash, the Purchases account (an expense - like account in the periodic system) is debited (increase in purchases) and Cash (an asset) is credited (decrease in cash as it is used for the purchase).

• Option A: In a periodic system, we don't directly debit Merchandise Inventory at the time of purchase. So, this option is incorrect.
• Option B: Debiting Purchases (correct account in periodic system) and crediting Cash (since cash is paid) is the right approach. The entry "Dr. Purchases $750 Cr. Cash $750" (assuming a typo in the option where it should be Cr. Cash instead of Cr. Merchandise Inventory) is in line with periodic inventory system journal - entry rules.
• Option C: Debiting Cash is wrong as cash is being paid out (so it should be credited), and there is no Accounts Payable (since the purchase is for cash, not on credit). So, this option is incorrect.

Answer:

B. Dr. Purchases $750 Cr. Cash $750 (assuming a typo in the option where the credit should be to Cash instead of Merchandise Inventory)