Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Under both the perpetual and periodic inventory systems, what type of account is the Cost of Goods Sold (COGS) account classified as?

Revenue account

Expense account

Liability account

Asset account

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Verified step by step guidance

Understand the concept of Cost of Goods Sold (COGS): COGS represents the direct costs incurred in producing goods that are sold during a specific period. It includes expenses like raw materials and labor directly tied to production.

Identify the classification of accounts: In financial accounting, accounts are classified into categories such as assets, liabilities, equity, revenue, and expenses. Each category serves a specific purpose in the financial statements.

Determine the nature of COGS: Since COGS represents costs incurred to generate revenue, it is not an asset, liability, or equity account. Instead, it is directly related to the expenses of the business.

Understand the relationship between COGS and the income statement: COGS is reported on the income statement as a deduction from revenue to calculate gross profit. This confirms its classification as an expense account.

Conclude that under both perpetual and periodic inventory systems, the Cost of Goods Sold (COGS) account is classified as an expense account because it reflects the costs associated with generating revenue.