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

In a perpetual inventory system, cost of goods sold (COGS) is measured by:

Ignoring inventory changes until the end of the year.

Calculating COGS only at the end of the accounting period using a physical count.

Estimating COGS based on periodic inventory adjustments.

Recording COGS at the time each sale occurs, updating inventory continuously.

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Verified step by step guidance

Understand the concept of a perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. This ensures real-time tracking of inventory levels and cost of goods sold (COGS).

Recognize the key difference between perpetual and periodic inventory systems: Unlike the periodic system, which calculates COGS at the end of the accounting period, the perpetual system records COGS at the time of each sale.

Learn how COGS is recorded in a perpetual inventory system: When a sale occurs, the system automatically reduces the inventory account and records the cost of the sold goods in the COGS account.

Understand the importance of continuous updates: The perpetual system uses technology, such as barcode scanners or inventory management software, to ensure inventory and COGS are updated in real-time.

Apply this knowledge to the problem: The correct answer is 'Recording COGS at the time each sale occurs, updating inventory continuously,' as this aligns with the principles of a perpetual inventory system.