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 is a key difference in how Cost of Goods Sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?

COGS is always lower under the perpetual system than under the periodic system.

Under the perpetual system, inventory purchases are not recorded until the end of the period, while under the periodic system, purchases are recorded immediately.

Under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the period.

Both systems require a physical count of inventory after every sale.

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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, including the cost of materials and labor.

Learn the perpetual inventory system: In this system, inventory records are updated continuously as transactions occur. COGS is calculated and recorded immediately after each sale.

Learn the periodic inventory system: In this system, inventory records are updated at the end of the accounting period. COGS is calculated using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).

Compare the two systems: The key difference is that under the perpetual system, COGS is updated in real-time with each sale, while under the periodic system, COGS is determined at the end of the period after a physical inventory count.

Understand the implications: Both systems may require a physical count of inventory for accuracy, but the timing and method of recording COGS differ significantly between the two systems.