Inventory for a manufacturing company includes raw materials, work in process, and finished goods. Inventory for a merchandising company includes goods primarily in finished form ready for sale. In a perpetual inventory system, inventory is continually adjusted for each change in inventory. Cost of goods sold is adjusted each time goods are sold or returned by a customer. A periodic inventory system adjusts inventory and records cost of goods sold only at the end of a reporting period.

Knowledge Check 01

Abbott Company uses a perpetual inventory system. When does Abbott record transactions relating to its inventory Multiple Choice

• Sales revenue, but not cost of goods sold, is recorded at the time of the sale.

• Sales revenue and cost of goods sold are both recorded at the time of the sale.

• Cost of goods sold is recorded only at the end of the accounting period.

• Sales revenue and cost of goods sold are both recorded only at the end of the accounting period