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. Under both systems, COGS is only calculated at the end of the accounting period.
• C. The perpetual system requires a physical inventory count to determine COGS, while the periodic system does not.
• 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. 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 continuously updates inventory records and COGS with each transaction, while the periodic inventory system updates inventory and calculates COGS only at the end of the accounting period.
3. Analyze the perpetual inventory system: In this system, every sale or purchase transaction is recorded immediately, and COGS is updated in real-time using inventory management software or systems.
4. Analyze the periodic inventory system: In this system, inventory and COGS are determined at the end of the accounting period by performing a physical inventory count and applying the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
5. Compare the two systems: The perpetual system provides continuous updates to COGS, making it more accurate for real-time decision-making, while the periodic system calculates COGS retrospectively, which may result in less timely information.