Define perpetual vs periodic inventory systems and how COGS is determined in each.

• A. Perpetual records COGS at each sale; periodic determines COGS at period end using ending inventory count.
• B. Perpetual determines COGS at period end; periodic records COGS at sale.
• C. Perpetual updates only cash balance; periodic updates only accounts payable.
• D. Perpetual ignores ending inventory; periodic ignores COGS.

Answer: (A)

COGS is recognized at different times depending on the inventory system. In a perpetual system, COGS is recorded at the moment of each sale, and the inventory balance is updated immediately to reflect the cost of the goods sold. This means you know the COGS for every transaction right away, and the ending inventory is the result of all purchases and sales tracked continuously.

In a periodic system, COGS is not updated with each sale. Instead, purchases are tracked in a purchases account, and the ending inventory is determined by a physical count at the period end. COGS for the period is then calculated as Beginning Inventory plus Purchases minus Ending Inventory. So the cost of goods sold is known only after the period ends and the ending inventory is measured.

Thus, the best answer describes perpetual as recording COGS at each sale and periodic as determining COGS at period end using the ending inventory count.