Which of the following is a key difference in how Cost of Goods Sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?

• A. COGS is always lower under the perpetual system than under the periodic system.
• B. Under the perpetual system, inventory purchases are not recorded until the end of the period, while under the periodic system, purchases are recorded immediately.
• C. Under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the period.
• D. Both systems require a physical count of inventory after every sale.

Answer: (C)

Verified step by step guidance

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.
2. Learn the perpetual inventory system: In this system, inventory records are updated continuously as transactions occur. COGS is calculated and recorded immediately after each sale.
3. Learn the periodic inventory system: In this system, inventory records are updated at the end of the accounting period. COGS is calculated using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
4. Compare the two systems: The key difference is that under the perpetual system, COGS is updated in real-time with each sale, while under the periodic system, COGS is determined at the end of the period after a physical inventory count.
5. Understand the implications: Both systems may require a physical count of inventory for accuracy, but the timing and method of recording COGS differ significantly between the two systems.