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 company produces goods for sale, those goods must be:

Immediately expensed as Cost of Goods Sold upon production.

Recorded as revenue when production is completed.

Recorded as inventory until they are sold, at which point they are expensed as Cost of Goods Sold.

Excluded from the financial statements until they are sold.

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Verified step by step guidance

Understand the concept of inventory: Inventory represents goods that a company has produced or purchased for resale but has not yet sold. It is classified as a current asset on the balance sheet.

Recognize the matching principle in accounting: Expenses should be recognized in the same period as the revenues they help generate. This means the cost of goods sold (COGS) is recorded only when the inventory is sold, not when it is produced.

Learn the accounting treatment for inventory: When goods are produced, their costs are recorded as inventory (an asset) on the balance sheet. This includes direct costs like materials and labor, as well as indirect costs like overhead.

Understand the transition from inventory to COGS: When the goods are sold, the inventory value is removed from the balance sheet and recorded as an expense under Cost of Goods Sold (COGS) on the income statement. This reflects the cost associated with generating the revenue from the sale.

Avoid common misconceptions: Goods are not immediately expensed as COGS upon production, nor are they recorded as revenue when production is completed. They are also not excluded from financial statements until sold. Instead, they are recorded as inventory until sold, adhering to proper accounting principles.