Multiple Choice
Which term describes the cost of merchandise that a firm sells during an accounting period?
71
views
4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following statements correctly describes how Cost of Goods Sold (COGS) is determined under the perpetual and periodic inventory systems?
A
The periodic system provides real-time inventory balances and COGS after each transaction.
B
The perpetual system does not track inventory purchases, only sales.
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.
Verified step by step guidance1
Step 1: Understand the two inventory systems: The perpetual inventory system updates inventory and Cost of Goods Sold (COGS) continuously after each transaction, providing real-time data. The periodic inventory system, on the other hand, does not update inventory or COGS continuously; instead, these are calculated at the end of the accounting period.
Step 2: Analyze the statement about the periodic system: The claim that the periodic system provides real-time inventory balances and COGS after each transaction is incorrect because the periodic system only calculates COGS at the end of the accounting period.
Step 3: Analyze the statement about the perpetual system: The claim that the perpetual system does not track inventory purchases, only sales, is incorrect. The perpetual system tracks both inventory purchases and sales, updating inventory and COGS continuously.
Step 4: Identify the correct description: The correct statement is that under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the accounting period.
Step 5: Confirm the incorrect statement: The claim that under both systems, COGS is only calculated at the end of the accounting period is incorrect because the perpetual system updates COGS continuously.
3:41mWatch next
Master Cost of Goods Sold:Perpetual Inventory with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory practice set
Problem sets built by lead tutorsExpert video explanations