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 best describes 'inventory' in the context of financial accounting?

The sum of all fixed assets owned by a business.

The collection of all accounts receivable owed to a business.

The total amount of cash a business holds at any given time.

The assortment or selection of finished items for sale that a business has in stock.

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Verified step by step guidance

Understand the term 'inventory' in financial accounting: Inventory refers to the goods and materials that a business holds for the purpose of resale or production. It is classified as a current asset on the balance sheet.

Differentiate inventory from other financial accounting terms: Inventory is distinct from fixed assets (long-term assets like buildings and machinery), accounts receivable (amounts owed by customers), and cash (liquid assets).

Recognize the types of inventory: Inventory can include finished goods ready for sale, raw materials used in production, and work-in-progress items that are partially completed.

Identify the correct description: Among the options provided, the correct description of inventory is 'The assortment or selection of finished items for sale that a business has in stock.' This aligns with the definition of inventory in financial accounting.

Apply this understanding in practice: When analyzing a company's financial statements, locate inventory under current assets and consider its role in the company's operations and liquidity.