Under a periodic inventory system, how is COGS computed?

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Prepare for the WGU ACCT2350 Intro to Business Accounting Exam. Practice with multiple choice questions and detailed solutions to sharpen your accounting skills. Master your exam with confidence!

Multiple Choice

Under a periodic inventory system, how is COGS computed?

Explanation:
In a periodic inventory system, cost of goods sold is found by taking what you had available for sale and then removing what you still have at the end of the period. You start with Beginning Inventory, add everything you purchased during the period, and then subtract Ending Inventory. This leaves the amount of inventory that was actually sold during the period: Beginning Inventory + Purchases - Ending Inventory. If you use net purchases (purchases minus returns and discounts), you’d substitute that in, but the structure is the same. The other forms don’t correctly reflect the flow of inventory and would misstate COGS.

In a periodic inventory system, cost of goods sold is found by taking what you had available for sale and then removing what you still have at the end of the period. You start with Beginning Inventory, add everything you purchased during the period, and then subtract Ending Inventory. This leaves the amount of inventory that was actually sold during the period: Beginning Inventory + Purchases - Ending Inventory. If you use net purchases (purchases minus returns and discounts), you’d substitute that in, but the structure is the same. The other forms don’t correctly reflect the flow of inventory and would misstate COGS.

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