Inventory Accounting and Financial Statements

Questions and Answers

What must companies that manufacture or sell goods account for?

inventory

Where is inventory classified in the financial statements?

as a current asset in the balance sheet

What are items held for sale in the normal course of business referred to as?

inventory

How is inventory classified?

a current asset Signup and view all the answers

How is cost of goods sold classified in the financial statements?

expense on income statement Signup and view all the answers

Items held for resale, used currently in production of goods to be sold, items currently in production for future sale are referred to as _____.

inventory Signup and view all the answers

What are companies that produce the inventory they sell referred to as?

manufacturers Signup and view all the answers

When inventory is sold, the cost of inventory is recognized as a(n) _____

expense Signup and view all the answers

How is cost of goods sold classified in the financial statements?

expense in the income statement Signup and view all the answers

Companies that serve as intermediaries between manufacturers and end users are referred to as _____ companies.

merchandising Signup and view all the answers

'Cost of sales' is another name for which of the following accounts?

costs of goods sold Signup and view all the answers

Study Notes

Inventory and Financial Statements

Companies that manufacture or sell goods must account for inventory, which is distinct from service-providing companies.
Inventory is classified as a current asset on the balance sheet, reflecting its liquidity and intended use in the near term.
Items held for sale in the normal course of business are also referred to as inventory.

Classification and Recognition

Inventory is always categorized as a current asset due to its short-term nature in business operations.
Cost of Goods Sold (COGS) is classified as an expense on the income statement, representing the direct costs of producing goods sold during a specific period.
When inventory is sold, the cost associated with it is recognized as an expense, illustrating the matching principle in accounting.

Types of Companies

Companies that produce the inventory they sell are known as manufacturers, highlighting their role in the supply chain.
Companies that serve as intermediaries between manufacturers and end users are classified as merchandising companies, functioning to facilitate product distribution.
"Cost of sales" is another term for costs of goods sold, which encompasses all direct costs tied to the production and sale of goods.

Additional Notes

Items held for resale, used in production, or in the process of being produced for future sale are still categorized under inventory, emphasizing the various stages of inventory management.

Description

This quiz covers the fundamentals of inventory accounting, including types of inventory, its classification as a current asset, and the recognition of cost of goods sold. Understand the principles that govern inventory management in manufacturing and retail companies.