How does inventory valuation affect the trial balance?
Practice Questions
1 question
Q1
How does inventory valuation affect the trial balance?
It only affects the balance sheet
It affects both the balance sheet and income statement
It has no effect on the trial balance
It only affects the cash flow statement
Inventory valuation affects both the balance sheet and income statement, thus impacting the trial balance as it reflects the value of inventory held by the business.
Questions & Step-by-step Solutions
1 item
Q
Q: How does inventory valuation affect the trial balance?
Solution: Inventory valuation affects both the balance sheet and income statement, thus impacting the trial balance as it reflects the value of inventory held by the business.
Steps: 6
Step 1: Understand that inventory is the goods a business has for sale.
Step 2: Know that inventory valuation is how we determine the value of that inventory.
Step 3: Realize that the value of inventory affects the balance sheet, which shows what the business owns and owes.
Step 4: Understand that inventory valuation also affects the income statement, which shows the business's profits and losses.
Step 5: Recognize that the trial balance is a summary of all accounts, including inventory, from the balance sheet and income statement.
Step 6: Conclude that if the inventory value changes, it will change the totals in the trial balance, reflecting the updated financial position of the business.
