Question

Marsh Company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account?

Marsh paid freight costs to ship goods from its supplier to Marsh.

Marsh returned inventory to the supplier that Marsh has purchased for cash.

All of these transactions either increase or decrease Marsh's inventory account.

Marsh granted a customer an allowance by reducing the purchasing price.

Marsh purchased of merchandise on account

Answer 1

Answer:

Marsh granted a customer an allowance by reducing the purchasing price.  SALES DISCOUNTS IS A CONTRA REVENUE ACCOUNT, NOT A CONTRA ASSET ACCOUNT, SO IT DOES NOT AFFECT THE INVENTORY ACCOUNT.

Explanation:

Marsh paid freight costs to ship goods from its supplier to Marsh.  INCREASES THE COST OF THE MERCHANDISE ⇒ INCREASES INVENTORY ACCOUNT

Marsh returned inventory to the supplier that Marsh has purchased for cash.  DECREASES MERCHANDISE INVENTORY.

Marsh purchased of merchandise on account. INCREASES MERCHANDISE INVENTORY