Which inventory accounting method continuously updates the cost of goods sold and inventory balances with each purchase and sale transaction?

• A. Specific identification method
• B. Periodic inventory system
• C. Weighted average cost method
• D. Perpetual inventory system

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory accounting methods: Inventory accounting methods are used to track and manage the cost of goods sold (COGS) and inventory balances. These methods differ in how and when they update inventory records.
2. Learn about the perpetual inventory system: The perpetual inventory system continuously updates inventory records and the cost of goods sold after each purchase or sale transaction. This system uses real-time tracking, often supported by technology such as barcode scanners or inventory management software.
3. Compare the perpetual inventory system with other methods: The periodic inventory system updates inventory records and COGS only at the end of an accounting period, while the weighted average cost method calculates an average cost for inventory items but does not inherently update records continuously.
4. Understand why the perpetual inventory system is the correct answer: Among the options provided, the perpetual inventory system is the only method that continuously updates inventory balances and COGS with each transaction, making it distinct from the other methods listed.
5. Review practical applications: Businesses that require real-time inventory tracking, such as retail stores or e-commerce platforms, often use the perpetual inventory system to ensure accurate and timely updates to their inventory records.