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 formulas correctly represents the relationship between inventory and cost of goods sold (COGS) under both perpetual and periodic inventory systems?

COGS = Beginning Inventory + Purchases - Ending Inventory

COGS = Ending Inventory + Purchases - Beginning Inventory

COGS = Beginning Inventory - Purchases + Ending Inventory

COGS = Purchases - Beginning Inventory + Ending Inventory

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Verified step by step guidance

Step 1: 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 goods.

Step 2: Recall the formula for COGS under both perpetual and periodic inventory systems. The formula is derived from the inventory equation: Beginning Inventory + Purchases - Ending Inventory = COGS.

Step 3: Analyze the components of the formula: Beginning Inventory represents the inventory at the start of the period, Purchases represent the goods bought during the period, and Ending Inventory represents the inventory remaining at the end of the period.

Step 4: Compare the given formulas to the standard inventory equation. The correct formula should align with the inventory equation: COGS = Beginning Inventory + Purchases - Ending Inventory.

Step 5: Eliminate incorrect options by checking whether they violate the inventory equation. For example, formulas that add Ending Inventory instead of subtracting it or subtract Beginning Inventory instead of adding it are incorrect.