On April 1, a Hardware Manufacturing Firm Purchases Inventory on Account

Multiple Choice

On April 1, a hardware manufacturing firm purchases inventory on account for $700. Which of the following correctly describes the effect of this transaction? Assume a perpetual inventory system is used.

A) Merchandise Inventory decreases by $700 and Accounts Receivable decreases by $700.
B) Merchandise Inventory decreases by $700 and Accounts Receivable increases by $700.
C) Merchandise Inventory increases by $700 and Accounts Payable decreases by $700.
D) Merchandise Inventory increases by $700 and Accounts Payable increases by $700.