Which of the Following Statements About Merchandising Activities Is True

question 28

Multiple Choice

Which of the following statements about merchandising activities is true? (More than one answer may be correct)

• A) As inventory is purchased, the Inventory Expense account is debited and Cash (or Accounts Payable) is credited.
• B) Inventory is recorded as an asset when it is first purchased.
• C) As inventory is sold, its cost is transferred from the balance sheet to the income statement.
• D) As inventory is sold, its cost is transferred from the income statement to the balance sheet.

---

Definitions:

Sales On Account

Sales made on credit, where the buyer is allowed to pay at a later date.

Cost Of Goods Sold

The direct expenses incurred in the production process of goods a company retails, consisting of materials and labor.

Acid-Test Ratio

A financial metric that measures the ability of a company to pay its short-term obligations with its most liquid assets.

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific moment in time, showing assets, liabilities, and owners' equity.