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

Which of the following items should be included in a company's inventory at year-end?

Goods shipped to a customer on consignment

Goods held on consignment for another company

Goods sold to a customer FOB destination that are still in transit

Goods purchased FOB shipping point that are in transit to the company

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Verified step by step guidance

Understand the concept of inventory: Inventory includes goods owned by the company that are available for sale or use in production. Ownership is determined by the terms of the transaction and the point at which the title transfers.

Review the term 'FOB shipping point': FOB (Free on Board) shipping point means that ownership of goods transfers to the buyer as soon as the goods are shipped. Therefore, goods purchased FOB shipping point that are in transit should be included in the buyer's inventory.

Analyze 'FOB destination': FOB destination means ownership transfers to the buyer only when the goods reach their destination. Goods sold to a customer FOB destination that are still in transit remain in the seller's inventory until delivery.

Understand consignment: Goods shipped to a customer on consignment remain in the inventory of the consignor (the company shipping the goods) until sold by the consignee. Similarly, goods held on consignment for another company are not included in the company's inventory, as the company does not own them.

Apply the concepts: Based on the definitions above, the only item that should be included in the company's inventory at year-end is 'Goods purchased FOB shipping point that are in transit to the company,' as ownership has already transferred to the company.