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