Which of the following statements best distinguishes the calculation of Cost of Goods Sold (COGS) under the perpetual inventory system compared to the periodic inventory system?

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

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of Cost of Goods Sold (COGS). COGS represents the direct costs attributable to the production of goods sold by a company, including the cost of materials and labor used in production.
2. Step 2: Learn the difference between the perpetual inventory system and the periodic inventory system. The perpetual system continuously updates inventory records and COGS with each transaction, while the periodic system updates inventory and calculates COGS only at the end of the accounting period.
3. Step 3: Analyze the statement 'Under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is determined at the end of the period.' This aligns with the definition of the perpetual and periodic systems.
4. Step 4: Evaluate the other options provided in the problem. For example, 'Under both systems, COGS is only calculated at the end of the accounting period' is incorrect because the perpetual system updates COGS continuously. Similarly, 'The perpetual system does not require inventory records, while the periodic system does' is incorrect because both systems require inventory records, albeit in different ways.
5. Step 5: Conclude that the correct distinction is that the perpetual system updates COGS continuously with each sale, while the periodic system calculates COGS at the end of the accounting period.