Multiple Choice
1. In accounting, what is the term for goods that a business purchases in order to sell?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following statements best describes how the cost of goods sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?
A
COGS is unaffected by the choice between perpetual and periodic inventory systems.
B
The perpetual system requires a physical inventory count to determine COGS, while the periodic system does not.
C
Under both systems, COGS is only calculated at the end of the accounting period.
D
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.
Verified step by step guidance1
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, including materials and labor costs.
Step 2: Learn about the perpetual inventory system. In this system, inventory records are updated continuously in real-time with each purchase and sale. COGS is calculated and recorded immediately after each sale transaction.
Step 3: Learn about the periodic inventory system. In this system, inventory records are updated only at the end of the accounting period. COGS is calculated by using the formula: COGS = Beginning Inventory + Purchases - Ending Inventory.
Step 4: Compare the two systems. Under the perpetual system, COGS is updated continuously, providing real-time data. Under the periodic system, COGS is calculated at the end of the accounting period, requiring a physical inventory count to determine the ending inventory.
Step 5: Recognize the key difference. The perpetual system provides ongoing updates to COGS with each sale, while the periodic system calculates COGS only at the end of the accounting period.
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