Final answer:
The cost of goods available for sale is allocated between ending inventory and cost of goods sold. Proper allocation affects the financial statements and is linked to the management of inventory levels based on business performance. In GDP calculations, care is taken to avoid double counting by only including the final output of goods and services.
Step-by-step explanation:
The cost of goods available for sale in a business is allocated between ending inventory and cost of goods sold. This allocation is crucial for accurately valuing inventory on the balance sheet and determining the cost of goods sold on the income statement. When business conditions fluctuate, there can be a corresponding change in the amount of inventories sitting on shelves, with decreases in inventory levels signaling better-than-expected sales, and increases indicating slower sales.
Ending inventory is reported on the balance sheet and represents the cost of inventory still available for sale at the end of an accounting period. The cost of goods sold, representing the direct costs attributable to the production of the goods sold by a company, is reported on the income statement. Understanding this allocation is an integral part of managing business finances and reporting financial performance.
In the context of GDP measurement, inventories constitute a part of the total output of the economy and avoiding double counting is essential for accurately calculating GDP. This is because GDP counts only the final output of goods and services, not the inputs or intermediate goods used in producing the final product.