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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Under the periodic inventory system, the beginning inventory is removed from the merchandise inventory account with a credit to Merchandise Inventory and a debit to Income Summary.

To determine

Identify whether the given statement is true or false.

Answer

The given statement “Under the periodic inventory system, the beginning inventory is removed from the merchandise inventory account with a credit to merchandise inventory and a debit to income summary is true.

Explanation

Periodic inventory system:

The method or system of recording the transactions related to inventory occasionally or periodically are referred to as periodic inventory system.

In periodic inventory system, the adjustment for beginning inventory is done by removing the beginning inventory from the merchandise inventory account by recording the following entry:

DateAccount Titles and ExplanationsDebit ($)Credit ($)
Income Summaryxxx
    Merchandise Inventoryxxx
(To record adjustment for merchandise inventory)

Table (1)

  • Income summary is a component of stockholders’ equity and it is decreased. Therefore, debit income summary account.
  • Merchandise Inventory is a current asset and it is decreased. Therefore, credit merchandise inventory account.

Therefore, from the above explanation, it is observed that, the given statement “Under the periodic inventory system, the beginning inventory is removed from the merchandise inventory account with a credit to merchandise inventory and a debit to income summary is true.

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