The two basic approaches to accounting for inventory and the cost of goods sold are the perpetual inventory system and the periodic inventory system. (More than one of the following statements may be correct.)
A) Most large merchandising companies and manufacturing businesses use periodic inventory systems.
B) As a practical matter, a grocery store or a large department store could not maintain a perpetual inventory system without the use of point-of-sale terminals.
C) In a periodic inventory system the cost of goods sold cannot be determined until a complete physical inventory is taken.
D) In a perpetual inventory system, the Cost of Goods Sold account is debited promptly for the cost of merchandise sold.

Question

Quizplus · Accepted Answer

Perpetual inventory systems require tracking inventory on a continual basis, which is difficult to do manually in large stores without the use of technology like point-of-sale terminals. Therefore, most large businesses use periodic inventory systems. Statements A, C, and D are incorrect because many large businesses do use perpetual inventory systems, the cost of goods sold can be estimated using the periodic inventory method without a complete physical inventory, and the debiting of the Cost of Goods Sold account occurs in both perpetual and periodic inventory systems.

The Two Basic Approaches to Accounting for Inventory and the Cost