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

Companies must have a carefully constructed inventory policy in order to:

accurately determine the cost of goods sold under both perpetual and periodic inventory systems

avoid recording any inventory transactions during the accounting period

ensure that all inventory is expensed immediately upon purchase

eliminate the need for physical inventory counts entirely

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Verified step by step guidance

Understand the purpose of an inventory policy: Inventory policies are designed to ensure accurate tracking and valuation of inventory, which is crucial for determining the cost of goods sold (COGS) and maintaining proper financial records.

Recognize the difference between perpetual and periodic inventory systems: A perpetual system continuously updates inventory records, while a periodic system updates inventory records at specific intervals, typically at the end of an accounting period.

Identify the role of inventory policies in COGS calculation: Inventory policies help establish consistent methods for valuing inventory, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or weighted average cost, which directly impact the calculation of COGS.

Clarify misconceptions about inventory policies: Inventory policies do not aim to avoid recording transactions, expense inventory immediately upon purchase, or eliminate physical inventory counts. Instead, they ensure accurate tracking and valuation of inventory.

Conclude the correct answer: The correct purpose of an inventory policy is to accurately determine the cost of goods sold under both perpetual and periodic inventory systems, as this supports reliable financial reporting and decision-making.