Which inventory system requires continuous tracking of inventory and COGS with each sale or purchase?

• A. Perpetual inventory system.
• B. Periodic inventory system.
• C. Hybrid inventory system.
• D. Job order inventory system.

Answer: (A)

Continuous tracking of inventory and COGS with each sale or purchase means the system updates both the inventory balance and the cost of goods sold every time a transaction occurs. The perpetual inventory system does this in real time: purchases are recorded as increases to inventory, and sales are recorded as decreases to inventory with COGS recognized immediately. This keeps the records current and closely matched to actual activity, which is especially useful for real-time monitoring and decision-making.

In contrast, a periodic system doesn’t update inventory or COGS with every sale. Purchases go into a purchases (or similar) account, and the inventory balance isn’t adjusted until the end of the period, when a physical count determines ending inventory and COGS is calculated as beginning inventory plus purchases minus ending inventory. The other options don’t describe real-time updating as a defining feature: one is not a standard term for the method, and the other centers on costing by job rather than maintaining continuous, comprehensive inventory balances.