Which statement accurately describes a perpetual inventory system?

Which statement accurately describes a perpetual inventory system?

• A. It updates inventory and COGS after every sale.
• B. It records inventory only at period end.
• C. It requires external count only if discrepancies.
• D. It does not track COGS.

Answer: (A)

Perpetual inventory keeps a running record of both the quantity on hand and the cost of goods sold with every transaction. When a sale occurs, the system immediately records the sale and reduces the Inventory account by the cost of the goods sold, while also posting the cost of that sale to COGS. This continuous updating is what distinguishes perpetual inventory from a periodic system, where inventory and COGS aren’t adjusted until a physical count at period end. Because COGS is tracked in real time in a perpetual system, the statement that inventory and COGS are updated after every sale is the accurate description. Physical counts are still used occasionally to verify accuracy, but they aren’t what defines the perpetual approach.

Perpetual inventory keeps a running record of both the quantity on hand and the cost of goods sold with every transaction. When a sale occurs, the system immediately records the sale and reduces the Inventory account by the cost of the goods sold, while also posting the cost of that sale to COGS. This continuous updating is what distinguishes perpetual inventory from a periodic system, where inventory and COGS aren’t adjusted until a physical count at period end. Because COGS is tracked in real time in a perpetual system, the statement that inventory and COGS are updated after every sale is the accurate description. Physical counts are still used occasionally to verify accuracy, but they aren’t what defines the perpetual approach.