Multiple Choice
Which of the following is the correct formula for determining Cost of Goods Manufactured (COGM)?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following best describes how inventory of services differs from inventory of products in accounting?
A
Services are always recorded as inventory at cost, while products are recorded at market value.
B
Services cannot be stored as inventory, while products can be inventoried until sold.
C
Both services and products are recorded as inventory on the balance sheet until delivered.
D
Products cannot be inventoried, but services can be stored for future sale.
Verified step by step guidance1
Understand the concept of inventory in accounting: Inventory refers to goods or products that a company holds for sale in the ordinary course of business. It is recorded as an asset on the balance sheet until sold.
Recognize the difference between products and services: Products are tangible items that can be physically stored and inventoried, while services are intangible and cannot be stored for future use.
Analyze the options provided in the question: Evaluate each statement to determine its accuracy based on the definition and characteristics of inventory.
Clarify why services cannot be stored as inventory: Services are consumed at the point of delivery and cannot be physically stored or inventoried like products. This is a key distinction in accounting.
Conclude that the correct answer is: 'Services cannot be stored as inventory, while products can be inventoried until sold,' as it accurately reflects the fundamental difference between services and products in accounting.
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