The Correct Accounting Entry to Create a Reserve Is

question 3

Multiple Choice

The correct accounting entry to create a reserve is:

• A) DR Retained earnings; CR Reserve.
• B) DR Reserve; CR Retained earnings.
• C) DR Profit and loss summary account; CR Reserve.
• D) DR Expense; CR Reserve.

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Definitions:

Inventory

Assets in the form of materials, work-in-progress, or finished goods held by a company to be sold in the ordinary course of business.

Perpetual Inventory System

An inventory management approach where updates to inventory records are made immediately following each transaction.

Cost Of Goods Sold

The direct monetary charges for materials and labor involved in the creation of goods a business sells.

Credit Terms

The conditions under which credit is extended by a lender to a borrower, including the repayment schedule, interest rate, and due date.