In a periodic inventory system, how is the inventory account updated?

In a periodic inventory system, how is the inventory account updated?

• A. By conducting a physical count of inventory at the end of the accounting period
• B. By recording every purchase and sale transaction in real time
• C. By relying on perpetual inventory software to automatically update the account
• D. By estimating the value of inventory based on historical sales data

Answer: (A)

In a periodic inventory system, the inventory balance is not updated with each transaction. Instead, you track purchases in a separate way (often in a Purchases account) and rely on a physical count at the end of the accounting period to determine how much ending inventory you actually have. That physical count is used to update the inventory figure and to compute Cost of Goods Sold as Beginning Inventory plus Purchases minus Ending Inventory. The method hinges on counting inventory at period end rather than continuously recording every sale and purchase in the Inventory account.

In a periodic inventory system, the inventory balance is not updated with each transaction. Instead, you track purchases in a separate way (often in a Purchases account) and rely on a physical count at the end of the accounting period to determine how much ending inventory you actually have. That physical count is used to update the inventory figure and to compute Cost of Goods Sold as Beginning Inventory plus Purchases minus Ending Inventory. The method hinges on counting inventory at period end rather than continuously recording every sale and purchase in the Inventory account.