Under a Perpetual Inventory System

question 139

Multiple Choice

Under a perpetual inventory system

• A) accounting records continuously disclose the amount of inventory
• B) increases in inventory resulting from purchases are debited to Purchases
• C) there is no need for a year-end physical count
• D) the purchase returns and allowances account is credited when goods are returned to vendors

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Definitions:

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to another, often leading to an imbalance in power or unfair advantages.

Adverse Selection

A situation in which one party in a transaction has more or better information than the other, often leading to a misallocation of resources.

Moral Hazard

A situation in economic theory where one party is willing to take more risks because the negative consequences of the risk will be borne by another party.

Moral Hazard

A situation where one party is more likely to take risks because another party bears the consequences of those risks.