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

Which inventory system is primarily used when a company has inventory with a high carrying cost?

Periodic inventory system

Perpetual inventory system

Weighted average method

Specific identification method

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Verified step by step guidance

Understand the concept of inventory systems: Inventory systems are methods used by companies to track and manage their inventory. The two main types are the periodic inventory system and the perpetual inventory system.

Analyze the characteristics of the perpetual inventory system: This system continuously updates inventory records in real-time as transactions occur. It is particularly useful for companies with high carrying costs because it provides accurate and timely information, helping to minimize excess inventory and associated costs.

Compare the periodic inventory system: The periodic inventory system updates inventory records at specific intervals, such as monthly or annually. It is less detailed and may not be suitable for companies with high carrying costs due to the lack of real-time tracking.

Evaluate the weighted average method and specific identification method: These are inventory costing methods, not inventory systems. The weighted average method calculates the cost of inventory based on the average cost of all items, while the specific identification method tracks the cost of individual items. Neither directly addresses the need for real-time tracking of inventory with high carrying costs.

Conclude that the perpetual inventory system is the most appropriate choice for companies with inventory that has a high carrying cost, as it provides real-time updates and helps optimize inventory management.