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

Answer: (D)

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 materials and labor costs.
2. Step 2: Learn about the perpetual inventory system. In this system, inventory records are updated continuously in real-time with each purchase and sale. COGS is calculated and recorded immediately after each sale transaction.
3. Step 3: Learn about the periodic inventory system. In this system, inventory records are updated only at the end of the accounting period. COGS is calculated by using the formula: COGS = Beginning Inventory + Purchases - Ending Inventory.
4. Step 4: Compare the two systems. Under the perpetual system, COGS is updated continuously, providing real-time data. Under the periodic system, COGS is calculated at the end of the accounting period, requiring a physical inventory count to determine the ending inventory.
5. Step 5: Recognize the key difference. The perpetual system provides ongoing updates to COGS with each sale, while the periodic system calculates COGS only at the end of the accounting period.