Multiple Choice
Cost of Goods Sold (COGS) is characterized by which of the following statements?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Why are inventories reported as current assets on the balance sheet?
A
Because inventories are expected to be sold or used within one year or the operating cycle, whichever is longer.
B
Because inventories are intangible assets that provide future economic benefits.
C
Because inventories are always converted into cash within five years.
D
Because inventories represent long-term investments in the company.
Verified step by step guidance1
Understand the definition of current assets: Current assets are resources expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.
Recognize the nature of inventories: Inventories include goods available for sale, raw materials, and work-in-progress items, which are typically sold or used in the production process within a short time frame.
Evaluate the options provided: Analyze each option to determine which aligns with the definition of current assets and the typical treatment of inventories in financial accounting.
Eliminate incorrect options: For example, inventories are not intangible assets, they are not always converted into cash within five years, and they do not represent long-term investments.
Select the correct answer: Inventories are reported as current assets because they are expected to be sold or used within one year or the operating cycle, whichever is longer.
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Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory practice set
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