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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Under both the perpetual and periodic inventory systems, the costs of direct materials are classified as:

Part of inventory until the goods are sold, then expensed as Cost of Goods Sold

An immediate expense on the income statement when purchased

A liability until the goods are sold

A component of administrative expenses

Previous problemNext problem

Verified step by step guidance

Understand the classification of direct materials under inventory systems: Direct materials are initially recorded as part of inventory, which is an asset on the balance sheet.

Recognize the perpetual inventory system: In this system, inventory is continuously updated as purchases and sales occur. Direct materials remain part of inventory until the goods are sold.

Recognize the periodic inventory system: In this system, inventory is updated at the end of the accounting period. Direct materials are still classified as part of inventory until the goods are sold.

Understand the transition to Cost of Goods Sold (COGS): When the goods are sold, the cost of direct materials is transferred from inventory to COGS, which is an expense on the income statement.

Eliminate incorrect options: Direct materials are not immediately expensed when purchased, are not classified as liabilities, and are not part of administrative expenses. They are part of inventory until sold, then expensed as COGS.