Which of the following is included in the calculation of Cost of Goods Sold (COGS) under a periodic inventory system?

• A. Inventory is continuously updated in real time
• B. Cost of goods sold is updated after every purchase
• C. Purchases made during the period
• D. Inventory losses detected immediately after each sale

Answer: (C)

Verified step by step guidance

1. Understand the periodic inventory system: In this system, inventory is not updated in real-time. Instead, inventory levels and Cost of Goods Sold (COGS) are determined at the end of the accounting period.
2. Recognize the formula for COGS under a periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula highlights that purchases made during the period are included in the calculation.
3. Note that inventory losses are not immediately detected under a periodic inventory system. Losses are typically identified during a physical count at the end of the period and are factored into the ending inventory value.
4. Understand that purchases made during the period are a key component of the COGS calculation. These purchases represent the cost of acquiring goods intended for resale during the accounting period.
5. Clarify that inventory is not continuously updated in real-time under a periodic inventory system. Instead, updates occur after a physical count at the end of the period, which contrasts with a perpetual inventory system where updates happen after every transaction.