Why are inventories included in the computation of net income?
A) to determine cost of goods sold
B) to determine sales revenue
C) to determine merchandise returns
D) Inventories are not included in the computation of net income.

Question

Quizplus · Accepted Answer

Inventories are included in the computation of net income to determine cost of goods sold. This is because the cost of goods sold is subtracted from revenue to calculate gross profit, which is then subtracted from operating expenses to arrive at net income. Therefore, accurate recording and valuation of inventories is essential in calculating net income.

Why Are Inventories Included in the Computation of Net Income