ANSWERS TO QUESTIONS Chapter 8

ANSWERS TO QUESTIONS Chapter 8 - 1 ANSWERS TO QUESTIONS 1...

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1. ANSWERS TO QUESTIONS 1. In a retailing concern, inventory normally consists of only one category, that is the product awaiting resale. In a manufacturing enterprise, inventories consist of raw materials, work in process, and finished goods. Sometimes a manufacturing or factory supplies inventory account is also included. 2. (a) Inventories are unexpired costs and represent future benefits to the owner. A statement of financial position includes a listing of all unexpired costs (assets) at a specific point in time. Because inventories are assets owned at the specific point in time for which a statement of financial position is prepared, they must be included in order that the owners’ financial position will be presented fairly. (b) Beginning and ending inventories are included in the computation of net income only for the purpose of arriving at the cost of goods sold during the period of time covered by the statement. Goods included in the beginning inventory which are no longer on hand are expired costs to be matched against revenues earned during the period.
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