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

Under a periodic inventory system, how is the cost of goods sold (COGS) determined at the end of the accounting period?

By subtracting ending inventory from the sum of beginning inventory and purchases

By continuously updating inventory balances after every purchase and sale

By recording COGS with each sale throughout the period

By using the lower of cost or market rule for each sale

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Verified step by step guidance

Understand the periodic inventory system: In this system, inventory balances are not updated continuously after each transaction. Instead, inventory is updated at the end of the accounting period.

Recall the formula for calculating Cost of Goods Sold (COGS) under a periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula helps determine the cost of goods sold by considering the changes in inventory over the period.

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 remaining at the end of the period.

Understand why the other options are incorrect: The periodic inventory system does not continuously update inventory balances after every purchase and sale, nor does it record COGS with each sale. The lower of cost or market rule is used for inventory valuation, not for calculating COGS.

Apply the formula at the end of the accounting period: Add \( \text{Beginning Inventory} \) and \( \text{Purchases} \), then subtract \( \text{Ending Inventory} \) to determine the COGS for the period.