Question

You have a current end-of-the-year inventory valued at $126,543.What does this value represent in accounting?

A. Net Income

B. Gross Profit

C. Book Value

D. Ending Inventory

Answer 1

This value represent D. Ending Inventory in accounting.

Step-by-step explanation:

Ending Inventory (D)refers to the total value of goods and products that a business has on hand at the end of a specific accounting period, usually a fiscal year. In this context, the current end-of-the-year inventory valued at $126,543 represents the total worth of the goods and merchandise that remain unsold at the end of the accounting period. This figure is crucial for financial reporting and reflects the cost of the goods that are yet to be sold.

In accounting, the Ending Inventory value is a key component in the calculation of the Cost of Goods Sold (COGS) and is used to determine the Gross Profit. The formula for Gross Profit is:

`\[ \text{Gross Profit} = \text{Net Sales} - \text{Cost of Goods Sold (COGS)} \]`

The Ending Inventory is subtracted from the Cost of Goods Available for Sale to calculate COGS. Therefore, a higher Ending Inventory value will result in a lower COGS, leading to a higher Gross Profit. It's important to note that Ending Inventory does not directly impact Net Income; it plays a crucial role in determining Gross Profit, which is a significant indicator of a company's profitability.

In summary, the Ending Inventory value of $126,543 represents the remaining worth of goods at the end of the accounting period, influencing the Gross Profit calculation and providing valuable insights into a company's financial performance.