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 typically created to account for damaged items in inventory?

Inventory write-down

Depreciation expense

Sales return allowance

Accounts receivable adjustment

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Verified step by step guidance

Understand the concept of inventory write-down: Inventory write-down is an accounting process used to reduce the value of inventory on the books when items are damaged, obsolete, or otherwise unsellable. This ensures that the financial statements accurately reflect the true value of the inventory.

Compare the options provided: Depreciation expense relates to the allocation of the cost of tangible assets over their useful life, which is unrelated to inventory. Sales return allowance accounts for returned goods by customers, not damaged inventory. Accounts receivable adjustment deals with changes in amounts owed by customers, which is also unrelated to inventory.

Recognize that inventory write-down is the correct term: It is specifically designed to account for damaged or unsellable inventory by reducing its value on the balance sheet and recording the loss in the income statement.

Understand the journal entry for inventory write-down: The typical journal entry involves debiting an expense account, such as 'Loss on Inventory Write-Down,' and crediting the 'Inventory' account to reflect the reduction in value.

Review the impact on financial statements: Inventory write-down affects the income statement by increasing expenses, which reduces net income. It also impacts the balance sheet by decreasing the value of inventory under current assets.