Inventory for a manufacturing company includes raw materials, work in process, and finished goods. Inventory for a merchandising company includes goods primarily in finished form ready for sale. In a perpetual inventory system, inventory is continually adjusted for each change in inventory. Cost of goods sold is adjusted each time goods are sold or returned by a customer. A periodic inventory system adjusts inventory and records cost of goods sold only at the end of a reporting period.

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Knowledge Check $01$

Which of the following statements about the types of inventory is $($are$)$ correct?

Note: Select all that apply.

Check All That Apply

Merchandising companies produce the goods they sell to customers.

Merchandising companies produce the goods they sell to customers.

When the manufacturing process is complete, the cost of the related inventory items is transferred into finished goods.

When the manufacturing process is complete, the cost of the related inventory items is transferred into finished goods.

Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement.

Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement.

Costs necessary to get inventory in condition and location for sale are not included as a cost of inventory.