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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Perpetual versus Periodic Inventory Systems Graham Company is trying to select an inventory system. Below are several statements that pertain to inventory systems.

  1. 1. Cost of goods sold is only determined at the end of the period after a physical count of inventory.
  2. 2. A physical count of inventory is performed.
  3. 3. Purchases of inventory are recorded in a purchases account.
  4. 4. Cost of goods sold is determined continually during the period as sales are made.
  5. 5. Greater control over inventory is possible.
  6. 6. This inventory system is relatively inexpensive to operate.

Required:

Select the inventory system, perpetual or periodic, that is best represented by each statement. If the statement applies to both systems, select “both.”

To determine

Identify the inventory system, best represented by the given statements.

Explanation

Periodic inventory system:

The method or system of recording the transactions related to inventory occasionally or periodically is referred as periodic inventory system.

Perpetual inventory system:

The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system.

The inventory system, best represented by the given statements are as follows:

  • Cost of goods sold is only determined at the end of the period after a physical count of inventory:

    The periodic inventory system...

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