Multiple Choice
Which of the following would NOT be included as part of the cost of equipment recently purchased under generally accepted accounting principles (GAAP)?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is an advantage of using the perpetual inventory system over the periodic inventory system when calculating Cost of Goods Sold (COGS)?
A
COGS is only determined at the end of the accounting period.
B
It eliminates the need for tracking individual inventory purchases.
C
Inventory records are updated continuously, providing real-time information.
D
Physical inventory counts are not required at any time.
Verified step by step guidance1
Understand the two inventory systems: The perpetual inventory system updates inventory records continuously as transactions occur, while the periodic inventory system updates inventory records only at the end of an accounting period.
Analyze the options provided in the question. For example, the statement 'COGS is only determined at the end of the accounting period' applies to the periodic inventory system, not the perpetual system.
Evaluate the statement 'It eliminates the need for tracking individual inventory purchases.' This is incorrect because the perpetual system requires detailed tracking of inventory purchases and sales in real-time.
Consider the statement 'Inventory records are updated continuously, providing real-time information.' This is a key feature of the perpetual inventory system, making it an advantage over the periodic system.
Review the statement 'Physical inventory counts are not required at any time.' This is incorrect because even with a perpetual system, physical inventory counts are still necessary to verify records and account for discrepancies like theft or damage.
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