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 statements about inventory costs is true under the perpetual and periodic inventory systems?

Both systems require a physical count of inventory at the end of each month.

Under the perpetual inventory system, the Cost of Goods Sold account is updated continuously with each sale.

The perpetual system does not track inventory purchases in real time.

Under the periodic inventory system, the Cost of Goods Sold account is updated after every purchase.

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Verified step by step guidance

Understand the difference between perpetual and periodic inventory systems. The perpetual inventory system continuously updates inventory records and the Cost of Goods Sold (COGS) account with each sale or purchase. The periodic inventory system updates inventory and COGS only at the end of the accounting period.

Analyze the first statement: 'Both systems require a physical count of inventory at the end of each month.' This is incorrect because a physical count is typically required only under the periodic system to determine ending inventory and COGS. The perpetual system tracks inventory in real time, but a physical count may still be done periodically for accuracy.

Evaluate the second statement: 'Under the perpetual inventory system, the Cost of Goods Sold account is updated continuously with each sale.' This is correct because the perpetual system records COGS immediately after each sale transaction.

Assess the third statement: 'The perpetual system does not track inventory purchases in real time.' This is incorrect because the perpetual system does track inventory purchases and updates inventory records in real time.

Review the fourth statement: 'Under the periodic inventory system, the Cost of Goods Sold account is updated after every purchase.' This is incorrect because the periodic system does not update COGS after every purchase; instead, COGS is calculated at the end of the accounting period using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).