If inventory is updated periodically, which method is being used to account for the cost of goods sold?

• A. Just-in-time inventory system
• B. Periodic inventory system
• C. Specific identification method
• D. Perpetual inventory system

Answer: (B)

Verified step by step guidance

1. Understand the concept of inventory systems: Inventory systems are methods used to track and account for inventory levels and the cost of goods sold (COGS). The two main systems are the periodic inventory system and the perpetual inventory system.
2. Define the periodic inventory system: In this system, inventory is updated periodically, typically at the end of an accounting period. The cost of goods sold is calculated using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
3. Compare the periodic inventory system to the perpetual inventory system: The perpetual inventory system updates inventory records continuously as transactions occur, whereas the periodic system updates inventory only at specific intervals.
4. Evaluate the options provided: The 'Just-in-time inventory system' is a strategy to minimize inventory levels, not a method for updating inventory. The 'Specific identification method' is a way to track individual items of inventory, not a system for updating inventory. The 'Perpetual inventory system' updates inventory continuously, which does not match the description of periodic updates.
5. Conclude that the correct method for updating inventory periodically is the 'Periodic inventory system,' as it aligns with the description provided in the problem.