Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Which of the following is a reason why managers closely monitor inventory levels?

To avoid recording cost of goods sold

To ensure sufficient stock is available to meet customer demand

To increase the company's tax liability

To intentionally misstate financial statements

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Verified step by step guidance

Understand the role of inventory in financial accounting: Inventory represents goods available for sale and is a key asset on the balance sheet. Managing inventory levels is crucial for operational efficiency and financial reporting.

Analyze the options provided in the question: Each option represents a potential reason for monitoring inventory levels. Evaluate each option based on its relevance to inventory management and financial accounting principles.

Option 1: 'To avoid recording cost of goods sold' - This is not a valid reason for monitoring inventory levels. Cost of goods sold (COGS) is recorded as part of the normal accounting process when inventory is sold, and avoiding it would not align with proper accounting practices.

Option 2: 'To ensure sufficient stock is available to meet customer demand' - This is a valid reason for monitoring inventory levels. Managers need to ensure that inventory is adequate to fulfill customer orders and avoid stockouts, which can impact sales and customer satisfaction.

Option 3: 'To increase the company's tax liability' and Option 4: 'To intentionally misstate financial statements' - Both of these options are incorrect and unethical. Increasing tax liability is not a goal of inventory management, and misstating financial statements violates accounting standards and regulations.