A Rising Balance in the Inventory Account and a Falling

question 88

Multiple Choice

A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory build up is occurring because:

• A)goods are not selling as fast as anticipated.
• B)the company is expecting to sell more in the future.
• C)goods are selling,but it is taking longer to collect payment.
• D)goods cannot be shipped fast enough.

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Definitions:

Expenses Overstated

A situation where the recorded amount of expenses is higher than the actual amount incurred, causing an understatement of net income.

Adjusting Journal Entry

a bookkeeping entry made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Net Income

The remaining income of a company once all taxes and costs are deducted from its total revenue.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, representing the wear and tear, or obsolescence of the asset.