Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

How is the inventory turnover ratio computed?

Net Sales divided by Ending Inventory

Average Inventory divided by Cost of Goods Sold

Cost of Goods Sold divided by Average Inventory

Gross Profit divided by Average Inventory

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Verified step by step guidance

Understand the concept of the inventory turnover ratio: It measures how efficiently a company manages its inventory by showing how many times inventory is sold and replaced during a specific period.

Identify the formula for inventory turnover ratio: The correct formula is \( \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} \).

Clarify the components of the formula: \( \text{Cost of Goods Sold} \) represents the direct costs attributable to the production of goods sold by the company, and \( \text{Average Inventory} \) is calculated as \( \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \).

Apply the formula: To compute the inventory turnover ratio, divide the \( \text{Cost of Goods Sold} \) by \( \text{Average Inventory} \). Ensure you have the values for both components before performing the calculation.

Interpret the result: A higher inventory turnover ratio indicates efficient inventory management, while a lower ratio may suggest overstocking or slow-moving inventory.