In a perpetual inventory system, when is COGS recognized?

• A. At the time of each sale.
• B. At period end.
• C. When inventory is purchased.
• D. Only at year end.

Answer: (B)

In a perpetual inventory system, COGS is recognized at the moment a sale occurs because the inventory and the cost of that sale are tracked continuously. When ownership transfers to the customer, you record the sale revenue and, at the same time, move the cost of the sold goods from Inventory to COGS. This keeps the expense matched with the revenue in the same period and provides an up-to-date inventory balance on the balance sheet.

If you hear that COGS is recognized only at period end, that describes a periodic inventory system, where COGS is calculated after the period by adjusting Beginning Inventory, Purchases, and Ending Inventory. Recognizing COGS when inventory is purchased or only at year end would not accurately reflect the timing of the cost associated with each sale.