Compare perpetual and periodic inventory systems and their impact on COGS and ending inventory.

• A. Perpetual updates COGS and inventory with each sale; periodic updates COGS and ending inventory only after physical count.
• B. Perpetual never updates ending inventory; periodic updates COGS after each sale.
• C. Perpetual uses only for large businesses; periodic only for small businesses.
• D. Perpetual records COGS; periodic records revenue.

Answer: (A)

Perpetual inventory tracks COGS and inventory continuously, updating both with every sale or purchase. When a sale occurs, the cost of the item sold is recorded as COGS and the inventory balance is reduced immediately. Ending inventory is kept up to date as transactions happen. The periodic system, on the other hand, doesn’t update COGS or ending inventory with each sale. Purchases go into a separate purchases account, and COGS and ending inventory are determined only at the end of the accounting period after a physical count. This difference means the described approach—perpetual updating COGS and inventory with each sale, while periodic updates COGS and ending inventory only after a physical count—accurately reflects how these two systems operate.