Show that you understand how wholesalers and retailers account for cost of goods sold.
- The cost of goods sold represents goods sold, as opposed to the inventory purchased during the year. Cost of goods sold is matched with the sales of the period.
- The cost of goods sold in any one period is equal to: Beginning inventory þ
Purchases - Ending inventory.
- Under the perpetual method, the Inventory account is updated after each sale or purchase of merchandise.
- In contrast, under the periodic method, the Inventory account is updated only at the end of the period.
- The cost of goods purchased includes any costs necessary to acquire the goods less any purchase discounts, returns, and allowances.
- Transportation-in is the cost to ship goods to a company and is typically classified as part of cost of goods purchased.