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 statements correctly describes how Cost of Goods Sold (COGS) is determined under the perpetual and periodic inventory systems?

The periodic system provides real-time inventory balances and COGS after each transaction.

The perpetual system does not track inventory purchases, only sales.

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.

Under both systems, COGS is only calculated at the end of the accounting period.

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Verified step by step guidance

Step 1: Understand the two inventory systems: The perpetual inventory system updates inventory and Cost of Goods Sold (COGS) continuously after each transaction, providing real-time data. The periodic inventory system, on the other hand, does not update inventory or COGS continuously; instead, these are calculated at the end of the accounting period.

Step 2: Analyze the statement about the periodic system: The claim that the periodic system provides real-time inventory balances and COGS after each transaction is incorrect because the periodic system only calculates COGS at the end of the accounting period.

Step 3: Analyze the statement about the perpetual system: The claim that the perpetual system does not track inventory purchases, only sales, is incorrect. The perpetual system tracks both inventory purchases and sales, updating inventory and COGS continuously.

Step 4: Identify the correct description: The correct statement is that under the perpetual system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the accounting period.

Step 5: Confirm the incorrect statement: The claim that under both systems, COGS is only calculated at the end of the accounting period is incorrect because the perpetual system updates COGS continuously.