Utah Contractor Practice Exam

Which method is most effective for adjusting inventory in the general ledger?

1. Adding new purchases

2. Averaging last year's inventory

3. Counting the existing inventory

4. Subtracting what you have used

The correct answer is: Counting the existing inventory

The most effective method for adjusting inventory in the general ledger is counting the existing inventory. This approach involves physically verifying the actual stock levels on hand, which provides the most accurate reflection of what is available. Conducting a physical count helps to identify discrepancies that may exist due to theft, loss, spoilage, or counting errors. By establishing a clear baseline through this direct measurement, businesses can make precise adjustments to their inventory records, ensuring that the general ledger reflects real-time stock levels. In contrast, adding new purchases does not account for existing inventory levels; averaging last year's inventory may not reflect current stock accurately, especially in a dynamic market; and simply subtracting what has been used does not account for remaining stock that has yet to be sold or may be in storage. This makes counting inventory the preferred and most reliable method for accurate adjustments in the general ledger.