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 of the following statements is correct when inventory unit costs are increasing?

Under the FIFO method, ending inventory will be lower in a perpetual system than in a periodic system.

Under the LIFO method, the cost of goods sold will be higher in a periodic inventory system than in a perpetual inventory system.

Under the FIFO method, the cost of goods sold will be lower in a perpetual inventory system than in a periodic inventory system.

Under the LIFO method, ending inventory will be higher in a periodic system than in a perpetual system.

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Verified step by step guidance

Step 1: Understand the inventory costing methods mentioned in the problem: FIFO (First-In, First-Out) and LIFO (Last-In, First-Out). FIFO assumes the oldest inventory is sold first, while LIFO assumes the newest inventory is sold first.

Step 2: Recognize the difference between perpetual and periodic inventory systems. A perpetual system updates inventory records continuously, while a periodic system updates inventory records at the end of an accounting period.

Step 3: Analyze the impact of increasing inventory unit costs on FIFO and LIFO methods. Under FIFO, the cost of goods sold (COGS) reflects older, lower costs, and ending inventory reflects newer, higher costs. Under LIFO, the COGS reflects newer, higher costs, and ending inventory reflects older, lower costs.

Step 4: Compare the behavior of FIFO and LIFO in perpetual and periodic systems. In a perpetual system, inventory records are updated after each transaction, which can lead to differences in COGS and ending inventory compared to a periodic system, where updates occur at the end of the period.

Step 5: Evaluate the specific statements provided in the problem based on the above concepts. For example, under LIFO, the cost of goods sold is typically higher in a periodic system than in a perpetual system when inventory costs are increasing, due to the timing of inventory updates.