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

Physical Inventory Count, Ownership of Goods, and Consigned Goods

Financial Accounting

5. Inventory

Physical Inventory Count, Ownership of Goods, and Consigned Goods

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Multiple Choice

Goods on consignment are:

Excluded from inventory records until sold to a third party

Included in the inventory of the consignor until sold

Included in the inventory of the consignee upon receipt

Recorded as inventory by both consignor and consignee

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Verified step by step guidance

Understand the concept of consignment: Consignment refers to an arrangement where goods are sent by the consignor (owner of the goods) to the consignee (agent) for sale. The consignor retains ownership of the goods until they are sold to a third party.

Clarify the inventory treatment: Goods on consignment are included in the inventory of the consignor because the consignor retains ownership of the goods until they are sold. The consignee does not record the goods as inventory since they do not own them.

Review the accounting principle: According to accounting standards, inventory is recorded by the entity that has ownership rights. In the case of consignment, the consignor has ownership rights until the goods are sold.

Analyze the options provided: Excluded from inventory records until sold to a third party is incorrect because the consignor must record the goods as inventory. Included in the inventory of the consignee upon receipt is incorrect because the consignee does not own the goods. Recorded as inventory by both consignor and consignee is incorrect because only the consignor records the inventory.

Select the correct answer: The correct treatment is 'Included in the inventory of the consignor until sold,' as the consignor retains ownership and must record the goods as inventory until they are sold to a third party.