Q2: For firms that do have inventories, is understanding how a firm records its inventory transactions and values its inventories important? Why or why not?

A:

For firms that have inventories, how it records its inventory transactions and values its inventories is usually important, and sometimes critical to understand.

One key reason for this is that for many businesses the Cost of goods sold (COGS) can be a very important part of calculating a firm’s profit for the period.

Another reason, is that inventories can be a significant asset for many businesses (for example, Wesfarmers has inventories of about $6.5 billion).