When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true?
A) Cost of goods sold is computed at the end of the accounting periods rather than at each sale.
B) The inventory account is updated throughout the year as purchases are made.
C) Purchases are recorded in the cost of goods sold account.
D) The inventory account is updated after each sale.

Question

Quizplus · Accepted Answer

In the periodic inventory system, the inventory account is only updated at the end of the accounting period, and cost of goods sold is calculated by subtracting the ending inventory balance from the beginning inventory balance and adding any purchases made during the period. Purchases are recorded in a separate account called purchases, not in the cost of goods sold account. The inventory account is not updated after each sale, only at the end of the period.

When a Company Uses the Periodic Inventory System in Accounting