Multiple Choice
Which of the following inventory systems typically includes a direct materials inventory account?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is NOT considered inventory on a company's balance sheet?
A
Work-in-process goods
B
Office supplies used by administrative staff
C
Raw materials held for production
D
Finished goods ready for sale
Verified step by step guidance1
Understand the definition of inventory: Inventory refers to assets that are intended for sale, are in the process of being produced for sale, or are used in the production of goods or services. Common categories include raw materials, work-in-process goods, and finished goods.
Analyze each option: Work-in-process goods are partially completed products that are still in production, and they are considered inventory. Raw materials held for production are also inventory because they are used to create finished goods. Finished goods ready for sale are inventory because they are the final products intended for sale.
Consider office supplies: Office supplies used by administrative staff are not considered inventory because they are not directly related to the production or sale of goods. Instead, they are classified as an expense or an asset under 'supplies' on the balance sheet.
Review the classification: Inventory is specifically tied to goods that are part of the production and sales process. Items like office supplies, which are used for administrative purposes, do not meet this definition.
Conclude the analysis: Based on the definitions and classifications, office supplies used by administrative staff are NOT considered inventory on a company's balance sheet.
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