Multiple Choice
Which of the following is considered distribution inventory in the context of Cost of Goods Sold under perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following statements regarding inventory accounting is true?
A
The periodic inventory system provides real-time information about inventory balances.
B
The perpetual inventory system only determines Cost of Goods Sold at the end of the accounting period.
C
Under the perpetual inventory system, the Cost of Goods Sold account is updated continuously with each sale.
D
Under the periodic inventory system, inventory records are updated after every purchase and sale.
Verified step by step guidance1
Understand the two inventory accounting systems: the periodic inventory system and the perpetual inventory system. The periodic system updates inventory records at specific intervals, typically at the end of an accounting period, while the perpetual system updates inventory records continuously with each transaction.
Analyze the statement 'The periodic inventory system provides real-time information about inventory balances.' This is incorrect because the periodic system does not provide real-time updates; inventory balances are determined at the end of the accounting period.
Evaluate the statement 'The perpetual inventory system only determines Cost of Goods Sold at the end of the accounting period.' This is incorrect because the perpetual system updates the Cost of Goods Sold account continuously with each sale.
Examine the statement 'Under the perpetual inventory system, the Cost of Goods Sold account is updated continuously with each sale.' This is correct because the perpetual system tracks inventory and Cost of Goods Sold in real-time.
Review the statement 'Under the periodic inventory system, inventory records are updated after every purchase and sale.' This is incorrect because the periodic system updates inventory records only at the end of the accounting period, not after every transaction.
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