Chapter 6, Problem 1RQ

1.    What is inventory? Where in the financial statements is inventory reported?

To determine

To Describe: The meaning of inventory, and the location in which the inventory is reported in the financial statements.

Explanation of Solution

Financial statement

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements; they are:

• Balance Sheet
• Income statement
• Statement of owners’ equity
• Statement of cash flows

Inventory:

Inventory refers to the raw materials, work-in progress, and the finished goods products that are held by the business to sell or make it ready for sale, in the future date.

Location in which the inventory is reported in the financial statements:

The costs of the inventory that are sold (cost of goods sold) during the year are reported as expenses in the Income statement of the Company. Whereas, the costs of the inventory that were not sold and are available with the Company at the end of the year (Ending inventory) are reported as assets in the Balance sheet of the Company.