Inventory Cycle

Lesson:

The inventory cycle tracks the movement and valuation of goods from raw materials through the manufacturing process to their final state as finished goods ready for sale.

Here are the key steps:

  1. Requisition of Raw Materials - Departments identify and request raw materials needed for production.
  2. Purchasing Raw Materials - A purchase order is authorized and issued to suppliers for raw materials.
  3. Receipt and Inspection of Raw Materials - Incoming raw materials are received, inspected for quality and quantity against the purchase order.
  4. Storage of Raw Materials - Accepted raw materials are moved to designated storage areas, such as warehouses, with inventory records updated.
  5. Issuance to Production - Raw materials are requisitioned and issued from storage to the production floor.
  6. Production and Conversion - Raw materials are converted into work-in-process and then finished goods.
  7. Storage and Issuance of Finished Goods - Completed finished goods are stored in finished goods inventory.
You're an auditor, explaining transaction cycles to a firm's owner.

This is what you've been told:

  • This step of the inventory cycle comes right after purchasing raw materials.
What is the relevant step in the inventory cycle when selling physical goods?

Answer:

  • Receipt and Inspection of Raw Materials

Explanation:

    Incoming raw materials are received, inspected for quality and quantity against the purchase order.
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