Answer
1. Because inventories are assets owned at a specific point in time for which a balance sheet is prepared, they must be included in order that the owner’s financial position will be presented fairly.
2. Inventories at the beginning and at the ending are only included in the balance sheet during computation of the cost of goods sold during the period of time covered by the statement.
Work Step by Step
(1)A balance sheet comprises of a listing of unexpired costs and future benefits of the owner’s assets at a specific point in time. Inventories represent future benefit/income to the owner. On the other hand (2) goods included in the beginning inventory which are no longer on hand are expired costs to be matched against revenues earned during the period. Goods included in the ending inventory are unexpired costs to be carried forward to a future period, rather than expenses.
