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 best describes a key difference between the perpetual and periodic inventory systems in calculating Cost of Goods Sold (COGS)?

The perpetual system does not require any record-keeping for inventory transactions.

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

In the periodic system, inventory records are updated after every purchase, while in the perpetual system, inventory is only updated at the end of the period.

In the perpetual system, COGS is updated continuously with each sale, while in the periodic system, COGS is determined at the end of the period.

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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. It includes the cost of materials and labor directly used to create the product.

Learn the perpetual inventory system: In this system, inventory records are updated continuously in real-time. Every sale or purchase transaction is recorded immediately, and COGS is calculated and updated with each sale.

Learn the periodic inventory system: In this system, inventory records are not updated continuously. Instead, inventory and COGS are determined at the end of the accounting period, typically through a physical count and calculation.

Compare the two systems: The key difference lies in the timing of updates. The perpetual system provides real-time updates to inventory and COGS, while the periodic system calculates COGS only at the end of the period.

Apply this understanding to the problem: The correct answer is that in the perpetual system, COGS is updated continuously with each sale, while in the periodic system, COGS is determined at the end of the period. This highlights the operational difference between the two systems.