Which of the following best describes how the cost of goods sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?

• A. The perpetual system does not track inventory purchases, while the periodic system does.
• B. COGS is always higher under the perpetual system than under the periodic system.
• C. Under both systems, COGS is only calculated at the end of the accounting period.
• D. Under the perpetual system, COGS is updated continuously with each sale; under the periodic system, COGS is calculated at the end of the period.

Answer: (D)

Verified step by step guidance

1. Understand the concept of the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. Each time a sale occurs, the cost of goods sold (COGS) is calculated and recorded immediately.
2. Understand the concept of the periodic inventory system: In this system, inventory records are not updated continuously. Instead, the COGS is calculated at the end of the accounting period by using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
3. Compare the timing of COGS calculation: Under the perpetual system, COGS is updated in real-time with each transaction, while under the periodic system, COGS is determined only at the end of the accounting period.
4. Analyze the statement options: Evaluate each option based on the definitions of the perpetual and periodic systems. For example, the perpetual system does track inventory purchases, so the first option is incorrect. Similarly, COGS is not always higher under the perpetual system, making the second option incorrect.
5. Select the correct answer: Based on the comparison, the correct description is that under the perpetual system, COGS is updated continuously with each sale, whereas under the periodic system, COGS is calculated at the end of the accounting period.