Multiple Choice
Which of the following is an element of inventory holding costs?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Under the periodic inventory system, ending inventory is equal to the cost of items on hand plus:
A
the cost of items purchased but not yet received
B
the cost of items sold during the period
C
nothing else; only the cost of items physically on hand is included
D
the cost of goods sold during the period
Verified step by step guidance1
Understand the periodic inventory system: Under this system, inventory is updated at the end of the accounting period, not continuously. Ending inventory is determined by physically counting the items on hand.
Clarify the concept of ending inventory: Ending inventory represents the cost of items physically on hand at the end of the period. It does not include items purchased but not yet received, items sold, or the cost of goods sold.
Review the formula for ending inventory: Ending inventory is calculated as the cost of items physically on hand, which is determined through a physical count and valuation.
Eliminate incorrect options: Items purchased but not yet received, items sold during the period, and the cost of goods sold are not part of ending inventory under the periodic inventory system.
Conclude that ending inventory under the periodic inventory system includes only the cost of items physically on hand at the end of the period.
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