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

Which of the following metrics represents the frequency of inventory replacement?

Current Ratio

Inventory Turnover Ratio

Days Sales Outstanding

Gross Profit Margin

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Verified step by step guidance

Understand the concept of Inventory Turnover Ratio: It measures how many times a company sells and replaces its inventory over a specific period. It is a key metric for assessing inventory management efficiency.

Recall the formula for Inventory Turnover Ratio: \( \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \). This formula helps calculate the frequency of inventory replacement.

Compare the given metrics: Current Ratio measures liquidity, Days Sales Outstanding measures the average collection period for receivables, and Gross Profit Margin measures profitability. None of these directly relate to inventory replacement frequency.

Identify the correct metric: Inventory Turnover Ratio is the only metric among the options that specifically represents the frequency of inventory replacement.

Apply the formula in practice: To calculate the Inventory Turnover Ratio, gather the Cost of Goods Sold and Average Inventory values from the financial statements, then substitute them into the formula to compute the ratio.