Multiple Choice
Which of the following sets of values are necessary to compute Cost of Goods Sold (COGS) under the periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is NOT a key difference between the calculation of Cost of Goods Sold (COGS) under the perpetual inventory system and the periodic inventory system?
A
Under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is determined at the end of the period.
B
Both systems always result in the same COGS amount, regardless of inventory method used.
C
The periodic system calculates ending inventory through a physical count, while the perpetual system maintains a running balance.
D
The perpetual system requires detailed records of inventory transactions, whereas the periodic system does not.
Verified step by step guidance1
Step 1: Understand the key differences between the perpetual inventory system and the periodic inventory system. The perpetual system updates inventory and Cost of Goods Sold (COGS) continuously with each transaction, while the periodic system calculates COGS at the end of the accounting period.
Step 2: Analyze the statement 'Both systems always result in the same COGS amount, regardless of inventory method used.' This is incorrect because the COGS amount can differ depending on the inventory method (e.g., FIFO, LIFO, Weighted Average) and the system used.
Step 3: Review the statement 'The periodic system calculates ending inventory through a physical count, while the perpetual system maintains a running balance.' This is true, as the periodic system relies on a physical count to determine ending inventory, whereas the perpetual system continuously tracks inventory levels.
Step 4: Examine the statement 'The perpetual system requires detailed records of inventory transactions, whereas the periodic system does not.' This is accurate because the perpetual system requires real-time tracking of inventory movements, while the periodic system only updates inventory records periodically.
Step 5: Conclude that the incorrect statement is 'Both systems always result in the same COGS amount, regardless of inventory method used,' as this does not align with the differences between the two systems.
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