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

Answer: (C)

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; under the periodic system, COGS is calculated at the end of the period.' This accurately describes the key difference between the two systems.
4. Step 4: Evaluate the other options provided in the problem. For example, the statement 'COGS is only calculated at the end of the accounting period under both systems' is incorrect because the perpetual system updates COGS continuously.
5. Step 5: Conclude that the correct answer is the statement that highlights the continuous update of COGS in the perpetual system and the end-of-period calculation in the periodic system.