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Which of the following is NOT considered a product cost under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following best describes how purchases from suppliers are recorded under the periodic inventory system?
A
Purchases are not recorded until the goods are sold.
B
Purchases are recorded in a separate 'Purchases' account and not directly in the Inventory account.
C
Purchases are immediately added to the Inventory account as they occur.
D
Purchases are only recorded at the end of the accounting period.
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Understand the periodic inventory system: In this system, inventory is updated periodically, typically at the end of the accounting period, rather than continuously as transactions occur.
Recognize how purchases are treated: Under the periodic inventory system, purchases are recorded in a separate 'Purchases' account rather than directly in the Inventory account. This is because inventory updates are deferred until the end of the period.
Distinguish from perpetual inventory system: In a perpetual inventory system, purchases are immediately added to the Inventory account as they occur, which is different from the periodic system.
Clarify timing of recording: Purchases are recorded when they occur, but the Inventory account itself is updated only at the end of the accounting period based on a physical count and adjustments.
Summarize the correct answer: The correct description is that purchases are recorded in a separate 'Purchases' account and not directly in the Inventory account under the periodic inventory system.
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