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

The measure of how long a company holds inventory before selling it is called the:

Gross profit margin

Inventory turnover ratio

Current ratio

Days sales in inventory

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Verified step by step guidance

Understand the concept of 'Days Sales in Inventory': This metric measures the average number of days a company takes to sell its inventory during a specific period. It is a key indicator of inventory management efficiency.

Learn the formula for Days Sales in Inventory: The formula is \( \text{Days Sales in Inventory} = \frac{\text{Ending Inventory}}{\text{Cost of Goods Sold}} \times 365 \). This formula helps calculate the average time inventory is held before being sold.

Identify the components of the formula: 'Ending Inventory' refers to the value of inventory at the end of the accounting period, and 'Cost of Goods Sold' (COGS) represents the direct costs attributable to the production of goods sold by the company.

Understand the significance of the result: A lower Days Sales in Inventory indicates efficient inventory management and faster turnover, while a higher value may suggest overstocking or slow-moving inventory.

Apply the formula to a given scenario: To calculate Days Sales in Inventory, plug the values of Ending Inventory and Cost of Goods Sold into the formula and multiply by 365 to determine the average number of days inventory is held before sale.