Assume all goods for resale are purchased for cash.If cash payments for inventory in the period are $67 000 and the expense cost of sales,calculated under the accrual basis,is $70 000:

Question

Quizplus · Accepted Answer

The expense of cost of sales, under the accrual basis, reflects the cost of inventory that was sold during the period. The cash payments for inventory represent the cash outflows for the purchases of inventory made during the period. Therefore, if the cash payments are less than the cost of sales, it means that some inventory was purchased but not sold during the period, resulting in an increase in stocks of inventory on hand. In this case, the difference is $3,000 ($70,000 - $67,000), which means that stocks of inventory on hand have increased by $3,000. Therefore, choice A is the best answer.

Assume All Goods for Resale Are Purchased for Cash