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

Financial Statement Effects of Inventory Costing Methods

Financial Accounting

5. Inventory

Financial Statement Effects of Inventory Costing Methods

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Multiple Choice

A company that assures product quality often sees which impact on its financial statements?

Higher cost of goods sold due to increased returns

Decreased sales revenue from dissatisfied customers

Increased write-downs of inventory

Lower inventory obsolescence expenses

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Verified step by step guidance

Understand the concept of inventory obsolescence: Inventory obsolescence occurs when inventory becomes outdated, damaged, or unsellable, leading to write-downs or expenses on the financial statements.

Analyze the impact of product quality assurance: When a company assures product quality, it reduces the likelihood of inventory becoming obsolete because high-quality products are less likely to be returned or unsellable.

Relate product quality assurance to financial statements: Lower inventory obsolescence expenses mean fewer write-downs of inventory, which positively impacts the company's financial health by reducing expenses.

Compare the given options: Higher cost of goods sold, decreased sales revenue, and increased write-downs of inventory are negative impacts, whereas lower inventory obsolescence expenses are a positive outcome of product quality assurance.

Conclude the reasoning: The correct answer is 'Lower inventory obsolescence expenses' because product quality assurance directly reduces the risk of inventory becoming obsolete, improving the company's financial performance.