Which of the following equations correctly identifies the cost flow of a merchandising company under the periodic inventory system?

• A. Cost of Goods Sold = Ending Inventory + Purchases - Beginning Inventory
• B. Cost of Goods Sold = Purchases - Beginning Inventory + Ending Inventory
• C. Cost of Goods Sold = Beginning Inventory - Purchases + Ending Inventory
• D. Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory

Answer: (D)

Verified step by step guidance

1. Understand the periodic inventory system: In this system, inventory is updated at the end of the accounting period, and the cost of goods sold (COGS) is calculated using the formula that accounts for the beginning inventory, purchases, and ending inventory.
2. Recall the formula for calculating COGS under the periodic inventory system: COGS = Beginning Inventory + Purchases - Ending Inventory. This formula reflects the flow of inventory costs during the period.
3. Break down the formula: Beginning Inventory represents the value of inventory at the start of the period. Purchases represent the cost of goods acquired during the period. Ending Inventory represents the value of inventory remaining at the end of the period.
4. Analyze the options provided: Compare each equation to the correct formula. The correct equation is the one that matches the structure of COGS = Beginning Inventory + Purchases - Ending Inventory.
5. Verify the logic: The formula ensures that the cost of goods sold accounts for the inventory used during the period (Beginning Inventory + Purchases) minus the inventory still on hand (Ending Inventory). This aligns with the principles of the periodic inventory system.