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

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

To determine inventory turnover from financial data, which quantity should be used for the flow rate in the calculation?

Gross Profit

Net Sales

Total Assets

Operating Expenses

Previous problemNext problem

Verified step by step guidance

Understand the concept of inventory turnover: Inventory turnover measures how efficiently a company sells and replaces its inventory over a specific period. It is calculated using the formula: Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory.

Identify the flow rate in the calculation: The flow rate represents the activity or sales that drive inventory turnover. In this case, the correct quantity to use is Net Sales, as it reflects the revenue generated from selling goods and services.

Eliminate incorrect options: Gross Profit, Total Assets, and Operating Expenses are not directly related to the calculation of inventory turnover. Gross Profit measures profitability, Total Assets represent the company's resources, and Operating Expenses are costs incurred during operations.

Clarify why Net Sales is appropriate: Net Sales is directly tied to the movement of inventory because it represents the revenue generated from selling goods. It is a key driver of inventory turnover and provides a clear measure of sales activity.

Apply the concept: To calculate inventory turnover, ensure you use Net Sales in the numerator of the formula along with Average Inventory in the denominator. This will provide insight into how efficiently inventory is managed.