When the Perpetual Inventory System Is Used, the Inventory Sold

question 161

Multiple Choice

When the perpetual inventory system is used, the inventory sold is debited to

• A) Supplies Expense
• B) Cost of Merchandise Sold
• C) Merchandise Inventory
• D) Sales

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Definitions:

Acid-Test Ratio

A financial metric used to determine a company's short-term liquidity, calculating its ability to pay off short-term obligations without selling inventory.

Accounts Receivable Turnover

A financial metric that measures how effectively a company collects its receivables, calculated as net credit sales divided by the average accounts receivable.

Working Capital

A measure of a company's liquidity, operational efficiency, and short-term financial health, calculated as current assets minus current liabilities.

Current Ratio

A financial indicator used to assess whether a company can handle its obligations in the short term, calculated by the ratio of current assets to current liabilities.