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 true statement about inventory within a continuous review system?

Inventory is only reviewed at fixed intervals, regardless of the inventory level.

Orders are placed at regular time intervals, not based on inventory levels.

Inventory errors cannot occur because the system automatically corrects all discrepancies.

Inventory levels are monitored continuously, and an order is placed when inventory falls to a predetermined reorder point.

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Verified step by step guidance

Understand the concept of a continuous review system: In inventory management, a continuous review system involves monitoring inventory levels on an ongoing basis rather than at fixed intervals. This allows for real-time tracking of inventory levels.

Identify the key feature of the system: The system places an order when inventory levels fall to a predetermined reorder point. This ensures that stock is replenished before it runs out, maintaining operational efficiency.

Compare the given statements: Evaluate each statement to determine its accuracy based on the definition of a continuous review system. For example, fixed intervals and regular time-based orders are characteristics of periodic review systems, not continuous review systems.

Clarify the role of inventory errors: Continuous review systems do not automatically correct all discrepancies. Errors can still occur, but the system helps minimize them by providing real-time data for decision-making.

Select the correct statement: Based on the analysis, the true statement is that inventory levels are monitored continuously, and an order is placed when inventory falls to a predetermined reorder point.