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

Under both the perpetual and periodic inventory systems, when does the cost of inventory become an expense (Cost of Goods Sold) on the income statement?

When the inventory is sold to customers

When payment is made to suppliers

When the inventory is purchased

At the end of the accounting period, regardless of sales

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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. It includes the cost of materials and labor directly used to create the product.

Recognize the difference between perpetual and periodic inventory systems: In a perpetual inventory system, inventory records are updated continuously as transactions occur. In a periodic inventory system, inventory records are updated at the end of an accounting period.

Identify when inventory costs are recognized as an expense: Under both systems, the cost of inventory becomes an expense (COGS) when the inventory is sold to customers. This aligns with the matching principle in accounting, which states that expenses should be recognized in the same period as the revenues they help generate.

Clarify why other options are incorrect: Payment to suppliers, purchasing inventory, or the end of the accounting period do not trigger the recognition of COGS. These events are related to inventory acquisition or accounting adjustments, not the sale of goods.

Relate this to the income statement: COGS is reported on the income statement as a deduction from sales revenue, helping to calculate gross profit. This ensures that the financial statements accurately reflect the company's profitability during the period.