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

When a product is sold, how is the Cost of Goods Sold (COGS) reported in the profit and loss statement under the perpetual inventory system?

COGS is recorded immediately at the time of each sale.

COGS is recorded only when inventory is purchased.

COGS is not reported in the profit and loss statement.

COGS is only calculated and recorded at the end of the accounting period.

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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 reported in the profit and loss statement to reflect the expense associated with the goods sold during a specific period.

Learn about the perpetual inventory system: Under this system, inventory records are updated continuously to reflect purchases and sales. This means that every time a sale occurs, the inventory and COGS are adjusted immediately.

Analyze how COGS is recorded under the perpetual inventory system: When a product is sold, the system automatically reduces the inventory account and records the COGS in the profit and loss statement at the same time. This ensures real-time tracking of inventory and expenses.

Compare the options provided in the problem: Evaluate each statement to determine which aligns with the perpetual inventory system. For example, 'COGS is recorded immediately at the time of each sale' is consistent with the perpetual inventory system, while other options like 'COGS is only calculated and recorded at the end of the accounting period' describe the periodic inventory system instead.

Conclude the correct reporting method: Based on the perpetual inventory system, COGS is recorded immediately at the time of each sale, ensuring accurate and timely financial reporting in the profit and loss statement.