Multiple Choice
Which of the following costs would NOT be allocated to products or customers under either the perpetual or periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
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
Under both systems, COGS is only calculated at the end of the accounting period.
B
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.
C
The perpetual system requires a physical count to determine COGS, while the periodic system does not.
D
COGS is unaffected by the choice between perpetual and periodic inventory systems.
Verified step by step guidance1
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.
Learn the perpetual inventory system: In this system, inventory records are updated continuously with each purchase and sale. COGS is calculated in real-time whenever a sale occurs, using the inventory data.
Learn the periodic inventory system: In this system, inventory records are not updated continuously. Instead, a physical count of inventory is performed at the end of the accounting period, and COGS is calculated using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
Compare the two systems: Under the perpetual system, COGS is updated continuously with each sale, providing real-time data. Under the periodic system, COGS is calculated only at the end of the accounting period after a physical inventory count.
Clarify misconceptions: The perpetual system does not require a physical count to determine COGS, as it relies on continuous updates. However, a physical count may still be performed periodically to verify inventory accuracy. The choice between systems does affect how COGS is calculated and recorded.
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