Under a perpetual inventory system, how is COGS determined?

Under a perpetual inventory system, how is COGS determined?

• A. COGS is recorded at the time of each sale as the cost of inventory sold; COGS = Beginning Inventory + Purchases/Production - Ending Inventory.
• B. COGS is recorded at end of period only; COGS = Beginning Inventory - Ending Inventory.
• C. COGS is the remaining inventory value; COGS = Ending Inventory - Beginning Inventory.
• D. COGS is irrelevant under perpetual; Not recorded.

Answer: (A)

Under a perpetual inventory system, the cost of each sale is recognized immediately by moving the cost from Inventory to COGS. When a sale occurs, you debit COGS and credit Inventory for the cost of the goods sold. Over a period, the total COGS equals Beginning Inventory plus Purchases (or Production) minus Ending Inventory. This approach keeps inventory and expenses up to date after every transaction, so the income statement and balance sheet reflect current values. The other ideas don’t fit: recording COGS only at the end describes a periodic system; COGS as Ending minus Beginning inaccurately measures the cost of goods sold; and saying COGS is irrelevant contradicts its purpose in measuring gross profit.

Under a perpetual inventory system, the cost of each sale is recognized immediately by moving the cost from Inventory to COGS. When a sale occurs, you debit COGS and credit Inventory for the cost of the goods sold. Over a period, the total COGS equals Beginning Inventory plus Purchases (or Production) minus Ending Inventory. This approach keeps inventory and expenses up to date after every transaction, so the income statement and balance sheet reflect current values. The other ideas don’t fit: recording COGS only at the end describes a periodic system; COGS as Ending minus Beginning inaccurately measures the cost of goods sold; and saying COGS is irrelevant contradicts its purpose in measuring gross profit.