A Company Will Most Likely Use an Estimated Method of Determining

question 156

Multiple Choice

A company will most likely use an estimated method of determining inventory when

• A) the company decides not to do a physical inventory.
• B) a natural disaster has destroyed most of their inventory.
• C) the company has not kept up with their inventory records.
• D) the company is preparing annual financial statements.

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Definitions:

Physical Inventory

A detailed listing of merchandise on hand.

Perpetual Inventory System

A method that continuously updates inventory records to reflect sales, returns, and additions in real time.

Perpetual Inventory System

An inventory management system where stock levels are updated in real-time following each purchase or sale.

Inventory Account

An account used to record the value of inventory held by a business, including goods ready for sale and those in the process of being produced.