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 is true with respect to the cost of goods sold (COGS) equation under the perpetual and periodic inventory systems?

The COGS equation is the same under both systems and is updated only once a year.

Under the periodic system, COGS is updated continuously with each sale.

Under the periodic system, COGS is calculated at the end of the period as: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).

Under the perpetual system, COGS is only determined at the end of the accounting period.

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Verified step by step guidance

Understand the difference between the perpetual and periodic inventory systems. The perpetual system updates inventory and COGS continuously with each transaction, while the periodic system calculates COGS at the end of the accounting period.

Recall the formula for calculating COGS under the periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula is used to determine the cost of goods sold after the accounting period ends.

Note that under the perpetual inventory system, COGS is updated in real-time as sales occur. This system uses technology, such as barcode scanners, to track inventory and sales continuously.

Identify the incorrect statements in the problem. For example, the claim that COGS is updated continuously under the periodic system is false, as this system only calculates COGS at the end of the period.

Conclude that the correct statement is: 'Under the periodic system, COGS is calculated at the end of the period as: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).' This aligns with the periodic system's methodology.