Which inventory system updates both inventory and cost of goods sold with every purchase and sale?

Which inventory system updates both inventory and cost of goods sold with every purchase and sale?

• A. Periodic
• B. Perpetual
• C. Hybrid
• D. None

Answer: (B)

Updating both inventory and cost of goods sold with each purchase and sale describes the perpetual inventory system. In perpetual, you keep a running balance of inventory on hand and a running record of COGS. When inventory is purchased, you debit Inventory and credit Cash or Accounts Payable, increasing the asset. When inventory is sold, you debit COGS and credit Inventory to reflect the cost of the goods leaving stock, and you also record revenue. Because the records are updated continuously, inventory on hand and COGS stay current after every transaction. The periodic system, by contrast, tracks purchases in a Purchases account and only updates Inventory and computes COGS at period end, resulting in less timely information. The hybrid option isn’t the standard approach for either aspect, and None would imply no system fits, which isn’t correct here.

Updating both inventory and cost of goods sold with each purchase and sale describes the perpetual inventory system. In perpetual, you keep a running balance of inventory on hand and a running record of COGS. When inventory is purchased, you debit Inventory and credit Cash or Accounts Payable, increasing the asset. When inventory is sold, you debit COGS and credit Inventory to reflect the cost of the goods leaving stock, and you also record revenue. Because the records are updated continuously, inventory on hand and COGS stay current after every transaction. The periodic system, by contrast, tracks purchases in a Purchases account and only updates Inventory and computes COGS at period end, resulting in less timely information. The hybrid option isn’t the standard approach for either aspect, and None would imply no system fits, which isn’t correct here.