Question

Regardless of the inventory costing system used, cost of goods available for sale must be allocated between:

1) beginning inventory and net purchases during the period.
2) net purchases during the period and ending inventory.
3) ending inventory and beginning inventory.
4) beginning inventory and cost of goods sold.
5) ending inventory and cost of goods sold.

Answer 1

The cost of goods available for sale is allocated between ending inventory and cost of goods sold, reflecting unsold and sold goods respectively. Option 5.

Step-by-step explanation:

The correct option to the student's question is 5) ending inventory and cost of goods sold. Regardless of the inventory costing system used, the cost of goods available for sale is allocated between ending inventory and cost of goods sold. Beginning inventory along with the net purchases during the period give us the total cost of goods available for sale. After the cost of goods sold is subtracted, we are left with the ending inventory. This matches the reality that unsold goods (inventories) are still assets owned by the company, while sold goods generate revenue and are expensed as cost of goods sold.