Multiple Choice
Under both the perpetual and periodic inventory systems, the cost of materials a company purchases to use in making products are classified as:
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
A periodic inventory system measures cost of goods sold (COGS) by:
A
Adjusting inventory balances after every purchase and sale transaction
B
Recording COGS continuously with each sale throughout the period
C
Calculating COGS at the end of the period as: Beginning Inventory + Purchases - Ending Inventory
D
Using a physical count only at the beginning of the period to determine COGS
Verified step by step guidance1
Understand the concept of a periodic inventory system: It is a method where inventory and cost of goods sold (COGS) are updated at the end of the accounting period, rather than continuously after each transaction.
Recognize the formula used to calculate COGS in a periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula accounts for the inventory available for sale during the period and subtracts the remaining inventory at the end.
Identify the components of the formula: \( \text{Beginning Inventory} \) is the inventory at the start of the period, \( \text{Purchases} \) are the goods bought during the period, and \( \text{Ending Inventory} \) is the inventory left at the end of the period after a physical count.
Understand the role of a physical count: In a periodic inventory system, a physical count is conducted at the end of the period to determine the \( \text{Ending Inventory} \), which is crucial for calculating COGS accurately.
Apply the formula at the end of the period: Once the physical count provides the \( \text{Ending Inventory} \), substitute the values for \( \text{Beginning Inventory} \), \( \text{Purchases} \), and \( \text{Ending Inventory} \) into the formula to calculate the \( \text{COGS} \).
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