In a periodic inventory system, which entry would correct the accounting equation after a purchase was recorded as a sale instead of inventory?

In a periodic inventory system, which entry would correct the accounting equation after a purchase was recorded as a sale instead of inventory?

• A. Credit to Cash
• B. Debit Cost of Goods Sold
• C. Debit to Sales Revenue
• D. Credit to Merchandise Inventory

Answer: (D)

In a periodic inventory system, purchases are tracked in a Purchases account and only at period end is the Inventory balance adjusted into Cost of Goods Sold. If a purchase is recorded as a sale, the immediate effect hits the revenue side ( Sales Revenue ) without properly increasing assets through Inventory. To fix the books and realign the accounts with the actual flow of transactions, the correction needs to address the asset side and reclassify the amount so that Inventory reflects the purchase properly. The direct way among the options to adjust the asset balance is to credit Merchandise Inventory, which reduces the inventory account to offset the misposting and restore the balance of the accounting equation. The other options affect cash, revenue, or COGS in ways that don’t directly correct the misclassification in a periodic system.

In a periodic inventory system, purchases are tracked in a Purchases account and only at period end is the Inventory balance adjusted into Cost of Goods Sold. If a purchase is recorded as a sale, the immediate effect hits the revenue side ( Sales Revenue ) without properly increasing assets through Inventory. To fix the books and realign the accounts with the actual flow of transactions, the correction needs to address the asset side and reclassify the amount so that Inventory reflects the purchase properly. The direct way among the options to adjust the asset balance is to credit Merchandise Inventory, which reduces the inventory account to offset the misposting and restore the balance of the accounting equation. The other options affect cash, revenue, or COGS in ways that don’t directly correct the misclassification in a periodic system.