Which of the following best describes the purpose of taking a physical count of inventory at the end of an accounting period?

• A. To determine the market value of inventory for tax purposes.
• B. To verify the actual quantity of inventory on hand and adjust the accounting records if necessary.
• C. To record the cost of goods sold for the next accounting period.
• D. To estimate future sales based on current inventory levels.

Answer: (B)

Verified step by step guidance

1. Understand the concept of inventory: Inventory refers to the goods a company holds for sale or production. It is a key asset and is tracked in accounting records.
2. Recognize the purpose of a physical count: A physical count of inventory is conducted to verify the actual quantity of inventory on hand at the end of an accounting period.
3. Identify the relationship between physical count and accounting records: The physical count helps ensure that the inventory recorded in the accounting system matches the actual inventory on hand. Discrepancies may arise due to theft, damage, or errors in record-keeping.
4. Understand the adjustment process: If discrepancies are found during the physical count, adjustments are made to the accounting records to reflect the accurate inventory levels. This ensures the financial statements are correct.
5. Clarify the purpose: The primary purpose of the physical count is not to determine market value, estimate future sales, or record cost of goods sold for the next period, but to verify and adjust inventory quantities in the accounting records.