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

Which of the following costs is NOT included in the calculation of Cost of Goods Sold (COGS) under both the perpetual and periodic inventory systems?

Freight-in on purchased inventory

Advertising expenses

Purchase discounts lost

Purchase returns and allowances

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Verified step by step guidance

Step 1: Understand the concept of Cost of Goods Sold (COGS). COGS represents the direct costs attributable to the production or purchase of goods that are sold during a specific period. It includes costs such as the purchase price of inventory, freight-in, and adjustments for purchase returns, allowances, and discounts.

Step 2: Differentiate between direct costs and indirect costs. Direct costs are those directly tied to the acquisition or production of goods, such as freight-in and purchase-related adjustments. Indirect costs, like advertising expenses, are not directly related to the production or purchase of goods and are classified as operating expenses.

Step 3: Analyze each option provided in the problem: Freight-in on purchased inventory is a direct cost and included in COGS. Purchase discounts lost and purchase returns and allowances are adjustments to the cost of inventory and are also included in COGS calculations.

Step 4: Identify the cost that is NOT included in COGS. Advertising expenses are indirect costs related to promoting the goods, not acquiring or producing them. Therefore, advertising expenses are excluded from COGS under both perpetual and periodic inventory systems.

Step 5: Conclude that advertising expenses are classified as operating expenses and are reported separately on the income statement, not as part of COGS.