A company has $2,000 in beginning inventory. It purchases merchandise for $3,500 and debits the purchases account. It sells $4,000 of merchandise during the year. At year end, a physical inventory is taken to determine ending inventory. Which inventory system is being used to track this company's costs?

A perpetual inventory system continuously updates inventory records with each purchase and sale, allowing real-time tracking of inventory levels and cost of goods sold. Since the question specifies that a physical inventory is taken at year-end to determine ending inventory, this indicates that the system does not continuously track inventory, ruling out a perpetual inventory system.

The term "perpetuity" refers to a financial concept where cash flows continue indefinitely without an end date. It is not related to inventory tracking systems and does not apply to the context of the question regarding inventory management.

A retail inventory system is designed specifically for retailers and may utilize techniques from either periodic or perpetual systems. However, it does not define the tracking method in question. Since the scenario clearly states that a physical inventory is conducted at year-end, the system being used is better categorized as periodic rather than simply retail.