Why Is a Good System of Internal Controls Necessary Over

question 18

Multiple Choice

Why is a good system of internal controls necessary over inventory?

• A)Inventory is an asset that a company must have available to sell.
• B)Inventory is large and hard for a company to manage with proper controls.
• C)Inventory is one of the main targets of fraud and theft.
• D)Inventory is tied to liabilities and must be managed before too much debt is incurred.

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Definitions:

Incremental Cash Flow

Those cash flows that arise solely from the asset that is being evaluated.

Present Value

The current valuation of upcoming cash flows or a lump sum of money, discounted at an established rate of return.

Sunk Cost

An expense that has already been incurred and cannot be recovered, which should theoretically not influence any future financial decisions or strategies.

Expensed

The act of charging costs to expense accounts, recognizing them in the income statement in the period they were incurred.