CPIM Practice Exam

What is the purpose of inventory adjustment?

1. To increase overall inventory

2. To correct the balance to match physical inventory

3. To determine production costs

4. To reduce inventory holding costs

The correct answer is: To correct the balance to match physical inventory

The purpose of inventory adjustment is primarily to ensure that the recorded inventory levels accurately reflect the actual physical inventory on hand. This process involves reconciling discrepancies that may arise from various factors such as theft, damage, data entry errors, or discrepancies during stock counts. When inventory adjustments are made, they help maintain the integrity of inventory records, which is crucial for effective inventory management and accurate financial reporting. While the other options touch on relevant aspects of inventory management, they do not encapsulate the core purpose of inventory adjustment. For instance, increasing overall inventory or reducing holding costs may be goals of inventory management, but they do not specifically define the role of adjustment entries. Determining production costs is also an important process, but it is not directly linked to the adjustment of inventory records. Thus, correcting the balance to match physical inventory is the most accurate description of what inventory adjustment aims to achieve.