a Option C b Option B c Option D d Option A A company purcha

a. Option C

b. Option B

c. Option D

d. Option A

A company purchased inventory on account. If the perpetual inventory method is used, which of the following choices accurately reflects how the purchase affects the company\'s financial statements? Cash Flow NA -OA NA - OA Assets = Liab. + Equity Rev -Exp. Net Inc NA NA NA NA NA NA NA NA A. -NA -NA NA NA NA C. NA =

Solution

Answer is d. Option A

Working note:

Journal entry for purchase of inventory on account:

Purchases Debit

Accounts payable Credit

In the above entry, we can see that assets increases in the form of inventory and liability also increases in the form of Accounts payable.So, in accounting equation:

Assets (+) = Liability (+) + Equity (NA)

Purchases is a direct expense and purchase of inventory increases expenses and reduces net income.So, as per accounting equation:

Revenue (NA) - Expenses (+) = Net Inc. (-)

Inventory has been purchased on credit, so there is no outflow of cash. It doesn\'t affect cash flow statement.