Which of the following is a function of inventory in a company's accounting system?

• A. To record cash receipts from customers
• B. To calculate depreciation expense for fixed assets
• C. To track the issuance of company stock
• D. To provide a record of goods available for sale and help determine the cost of goods sold

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory in accounting: Inventory represents goods that a company holds for sale in the ordinary course of business or materials used in production.
2. Recognize the primary function of inventory in accounting: It is used to provide a record of goods available for sale and to help determine the cost of goods sold (COGS).
3. Differentiate inventory from other accounting functions: Inventory is not related to recording cash receipts, calculating depreciation, or tracking stock issuance. These are separate accounting processes.
4. Learn how inventory impacts financial statements: Inventory is reported as a current asset on the balance sheet and plays a key role in calculating COGS, which is an expense on the income statement.
5. Understand the relationship between inventory and COGS: The formula for COGS is typically expressed as: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This calculation helps determine the cost of goods sold during a specific period.