Which of the following reflects a non-monetary item?

Which of the following reflects a non-monetary item?

• A. Bank loans
• B. Accounts receivable
• C. Inventories
• D. Cash equivalents

Answer: (C)

Inventories qualify as a non-monetary item because they represent assets that a company holds for sale in the normal course of business, or for consumption in the production of goods or services. Unlike monetary items, which represent a claim to cash or cash equivalents, non-monetary items do not have a fixed cash value and can change in value due to market fluctuations, consumption, and production levels. Inventories are valued based on various methods, such as FIFO (first-in, first-out) or weighted average cost, rather than being directly tied to cash flows. This is a key distinction that classifies them as non-monetary. In contrast, bank loans, accounts receivable, and cash equivalents are all monetary items. Bank loans represent a specific amount of money owed that can be readily converted to cash, accounts receivable are sums expected to be received in cash, and cash equivalents include short-term investments that are easily convertible into known amounts of cash. Each of these items holds a defined monetary value that does not fluctuate based on operational variables, therefore marking a clear distinction between them and inventories in the context of financial reporting.

Inventories qualify as a non-monetary item because they represent assets that a company holds for sale in the normal course of business, or for consumption in the production of goods or services. Unlike monetary items, which represent a claim to cash or cash equivalents, non-monetary items do not have a fixed cash value and can change in value due to market fluctuations, consumption, and production levels.

Inventories are valued based on various methods, such as FIFO (first-in, first-out) or weighted average cost, rather than being directly tied to cash flows. This is a key distinction that classifies them as non-monetary.

In contrast, bank loans, accounts receivable, and cash equivalents are all monetary items. Bank loans represent a specific amount of money owed that can be readily converted to cash, accounts receivable are sums expected to be received in cash, and cash equivalents include short-term investments that are easily convertible into known amounts of cash. Each of these items holds a defined monetary value that does not fluctuate based on operational variables, therefore marking a clear distinction between them and inventories in the context of financial reporting.