When a periodic inventory system is used: A) Cost of goods sold is a residual amount

Accounting May 27, 2021

When a periodic inventory system is used: A) Cost of goods sold is a residual amount. B) Ending inventory is transferred to expense and the beginning inventory is transferred to assets. C) A purchases account is not used; all inventory purchase entries are debits to thi inventory account. D) Two entries must be made when goods are purchased.

Expert Solution

Answer

A )

Explanation

The correct option is A "Cost of goods sold is a residual amount". The inventory on hand is "periodically" determined by physical count. In a periodic inventory system, cost of goods sold (CGS) is a residual amount obtained by subtracting the ending inventory from the sum of beginning inventory and net purchases.

Cost of goods sold = Beginning Inventory + Purchases - Ending Inventory

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