How Does the Purchase of Inventory on Account Under the Perpetual

question 55

Multiple Choice

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

• A) Total assets increase
• B) Total liabilities increase
• C) Total assets are unaffected
• D) Total assets and total liabilities both increase

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Definitions:

Winding Up

The process of dissolving a company, involving liquidating assets to pay off creditors and distributing any remaining assets to shareholders.

Capital Account Balance

The net result of public and private international investments flowing in and out of a country, reflecting changes in ownership of national assets.

Net Income

The amount of profit a company generates after all expenses, taxes, and costs have been subtracted from total revenue.

Withdrawals

Amounts of money taken out from a business by its owner(s) for personal use.