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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following lists the four primary reasons that companies hold inventory?

To meet anticipated customer demand, to smooth production requirements, to decouple operations, and to protect against stockouts

To comply with government regulations, to increase borrowing capacity, to avoid paying suppliers, and to reduce insurance costs

To maximize advertising, to decrease employee turnover, to increase liabilities, and to reduce product quality

To increase tax deductions, to reduce cash flow, to avoid depreciation, and to minimize sales

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the concept of inventory in financial accounting. Inventory refers to the goods and materials that a company holds for the purpose of resale or production. It is a key asset on the balance sheet and plays a critical role in operations and financial management.

Step 2: Recognize the primary reasons companies hold inventory. These reasons are typically operational and strategic, aimed at ensuring smooth business processes and meeting customer needs.

Step 3: Analyze the options provided in the problem. Look for reasons that align with operational efficiency, customer satisfaction, and risk management. For example, holding inventory to meet anticipated customer demand ensures the company can fulfill orders promptly.

Step 4: Eliminate options that do not align with the practical and financial purposes of inventory management. For instance, reasons like increasing borrowing capacity or reducing insurance costs are not directly related to the core purpose of holding inventory.

Step 5: Select the correct answer based on the alignment of the reasons with inventory management principles. The correct reasons should include meeting customer demand, smoothing production requirements, decoupling operations, and protecting against stockouts.