In a periodic inventory system, the cost of goods sold is determined by:
A) Multiplying net sales for the period by a cost ratio.
B) Journal entries made at the time of each sales transaction.
C) Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end.
D) Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period.

Question

Quizplus · Accepted Answer

In a periodic inventory system, the cost of goods sold is determined by subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period. This is because inventory is not tracked on a day-to-day basis, but rather its quantity and cost is determined at the end of the period through a physical count. Therefore, the cost of goods sold cannot be determined by journal entries or by physically counting quantities of merchandise sold each day. Multiplying net sales by a cost ratio would also not accurately reflect the cost of goods sold.

In a Periodic Inventory System, the Cost of Goods Sold