When using a perpetual inventory system, why are discounts credited to Inventory? The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory. The discounts reduce the cost of the inventory. The discounts are a reduction of business expenses. None of these answers choices are correct.

Perpetual inventory method is also called continuous inventory method and involves updating information on inventory availability and and quantity on a continuous basis. Sales and purchase of inventory are immediately recorded in a computerised system.

This is an effective way to get a picture of inventory on hand as records are up to date.

In this method since records are immediately inputted including discounts, sales, sales returns, purchases, purchase returns, and allowances on goods sold.

Discounts are debited from accounts payable and credited to inventory reducing the cost of the inventory.