Identify whether each description best applies to a periodic or a perpetual inventory system.
a. Provides more timely information to managers.
b. Requires an adjusting entry to record inventory shrinkage.
c. Markedly increased in frequency and popularity in business within the past decade.
d. Records cost of goods sold each time a sales transaction occurs.
QS 5-
1
a. Periodic
b. Perpetual
c. Perpetual
d. Perpetual
To identify whether each description best applies to a periodic or a perpetual inventory system, let's examine the characteristics of both systems and match them to the given descriptions:
Periodic inventory system:
- Under the periodic system, a physical count of inventory is done periodically, usually at the end of the accounting period.
- The cost of goods sold (COGS) is calculated by subtracting the ending inventory from the beginning inventory plus purchases.
- There is no detailed record of individual inventory transactions.
Perpetual inventory system:
- Under the perpetual system, a continuous and updated record of inventory quantity and cost is maintained.
- The COGS is recorded each time a sales transaction occurs by debiting the COGS account and crediting the inventory account.
- Inventory shrinkage is recorded immediately when it occurs.
Now let's match the given descriptions with the appropriate inventory system:
a. Provides more timely information to managers:
This description best applies to the perpetual inventory system since it maintains a continuous and updated record of inventory, providing real-time information to managers.
b. Requires an adjusting entry to record inventory shrinkage:
This description also applies to the perpetual inventory system. Since the perpetual system keeps track of inventory continuously, any inventory shrinkage is recorded immediately with an adjusting entry.
c. Markedly increased in frequency and popularity in business within the past decade:
This description aligns with the perpetual inventory system. With the advancement of technology and the desire for real-time information, the perpetual system has gained popularity in recent years.
d. Records cost of goods sold each time a sales transaction occurs:
This description fits the perpetual inventory system. Under this system, the cost of goods sold is recorded and updated for each sales transaction, enabling accurate and up-to-date reporting of COGS.
In conclusion:
a. Perpetual inventory system
b. Perpetual inventory system
c. Perpetual inventory system
d. Perpetual inventory system
a. Periodic inventory system - Provides more timely information to managers.
b. Perpetual inventory system - Requires an adjusting entry to record inventory shrinkage.
c. Perpetual inventory system - Markedly increased in frequency and popularity in business within the past decade.
d. Perpetual inventory system - Records cost of goods sold each time a sales transaction occurs.