Which of the following statements best describes how the Cost of Goods Sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?

• A. The perpetual system requires a physical inventory count to determine COGS, while the periodic system does not.
• B. COGS is not affected by the choice between perpetual and periodic inventory systems.
• 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. Under both systems, COGS is only calculated at the end of the accounting period.

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 materials and labor.
2. Learn the difference between the perpetual and periodic inventory systems: The perpetual inventory system updates inventory records and COGS continuously with each transaction, while the periodic inventory system updates inventory and calculates COGS only at the end of the accounting period.
3. Analyze the statement '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': This statement aligns with the definition of the two systems, as the perpetual system tracks inventory and COGS in real-time, whereas the periodic system requires a physical inventory count and calculation at the end of the period.
4. Compare the other options provided: Evaluate why the other statements are incorrect. For example, the perpetual system does not require a physical inventory count to determine COGS, and COGS is indeed affected by the choice of inventory system.
5. Conclude that the correct answer is based on the operational differences between the perpetual and periodic systems, specifically how and when COGS is updated or calculated.