In both perpetual and periodic inventory systems, what does the sum of beginning inventory and net purchases represent?

• A. Cost of Goods Available for Sale
• B. Cost of Goods Sold
• C. Net Income
• D. Ending Inventory

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'Cost of Goods Available for Sale': This term represents the total inventory available for sale during a specific period. It is calculated by adding the beginning inventory (inventory carried over from the previous period) to net purchases (purchases made during the current period minus purchase returns, allowances, and discounts).
2. Recognize the formula for 'Cost of Goods Available for Sale': \( \text{Cost of Goods Available for Sale} = \text{Beginning Inventory} + \text{Net Purchases} \). This formula is applicable in both perpetual and periodic inventory systems.
3. Differentiate between the options provided: 'Cost of Goods Available for Sale' is not the same as 'Cost of Goods Sold,' 'Net Income,' or 'Ending Inventory.' Each term has a distinct meaning in financial accounting. For example, 'Cost of Goods Sold' is derived by subtracting ending inventory from 'Cost of Goods Available for Sale.'
4. Apply the concept to the problem: The sum of beginning inventory and net purchases directly represents 'Cost of Goods Available for Sale,' as it accounts for all inventory available for sale during the period.
5. Verify the understanding: Ensure that the student can distinguish 'Cost of Goods Available for Sale' from other terms like 'Cost of Goods Sold,' 'Net Income,' and 'Ending Inventory,' and understand its role in inventory management and financial reporting.