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

In both perpetual and periodic inventory systems, Cost of Goods Sold (COGS) is classified as which type of account?

Expense account

Asset account

Liability account

Revenue account

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Verified step by step guidance

Understand the concept of Cost of Goods Sold (COGS): COGS represents the direct costs attributable to the production of goods sold by a company, including materials and labor. It is a key component in determining gross profit.

Recall the classification of accounts in financial accounting: Accounts are generally classified into assets, liabilities, equity, revenue, and expenses.

Analyze the nature of COGS: Since COGS represents costs incurred to generate revenue, it is not an asset, liability, or revenue account. Instead, it is classified as an expense account because it reduces the company's net income.

Compare COGS in perpetual and periodic inventory systems: In both systems, COGS is treated as an expense account. The difference lies in how COGS is calculated—perpetual systems update COGS continuously, while periodic systems calculate it at the end of the accounting period.

Conclude that COGS is classified as an expense account in both perpetual and periodic inventory systems, as it reflects the cost of goods sold during the period and impacts the income statement.