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

High inventory turnover is beneficial because it allows a company to do which of the following?

Reduce storage and holding costs

Increase the risk of obsolete inventory

Maintain higher levels of unsold inventory

Delay cash collection from customers

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Verified step by step guidance

Understand the concept of inventory turnover: Inventory turnover measures how quickly a company sells and replaces its inventory over a given period. A high inventory turnover indicates efficient inventory management and faster sales cycles.

Analyze the benefits of high inventory turnover: High inventory turnover reduces the time inventory spends in storage, which minimizes storage and holding costs. This is because less inventory is kept on hand for extended periods.

Evaluate the risks associated with high inventory turnover: While high turnover reduces storage costs, it also decreases the likelihood of inventory becoming obsolete, as products are sold quickly before they lose relevance or value.

Consider the impact on unsold inventory levels: High inventory turnover typically results in lower levels of unsold inventory, as products are sold more rapidly and replenished as needed.

Assess the relationship with cash collection: High inventory turnover accelerates the sales process, which can lead to quicker cash collection from customers, rather than delaying it.