211c8m7 - Introduction to Financial Accounting Chapter 8,...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 7 Chapter 8, Module 7 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 7 Chapter 8 Module 7 Hi everyone. Welcome back. Now that we know all of that good stuff about LIFO, FIFO, Weighted Average and Inventory Analysis, let’s wrap up our discussion of inventory and talk about some of the key financial statement ratios related to inventory. Let’s jump right into it and go to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 7 Slide 2 Financial Statement Ratios Relating to Inventory: 1. Inventory Turnover Inventory Turnover 2. 2. Number of Days Sales in Inventory Number of Days Sales in Inventory 3. 3. Gross Margin (Profit) Percentage Gross Margin (Profit) Percentage Chapter 8 Module 7: Inventory Ratios And, we are going to look at three (3) specific ratios that are related to inventory. The first one is called the Inventory Turnover Ratio. The second one is the Number of Days Sales in Inventory. And the third one is the Gross Margin or Gross Profit Percentage. It is worth noting that Gross Profit, which is what we have been talking about since really day one: Sales minus (-) Cost of Goods Sold is also referred to as Gross Margin. And, while the textbook is usually pretty good about being consistent in terms of calling items the same thing chapter to chapter, they do have a tendency to flip when they deal with Gross Profit and Gross Margin. Don’t be confused! Gross Profit is the exact same thing as Gross Margin.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 7 But, when they deal with this ratio, they tend to call it the Gross Margin Percentage. It is the same thing as the Gross Profit Percentage. I mention that only because I do not want you to be confused as to what Gross Margin is. It is the same things as Gross Profit: Sales minus (-) Cost of Goods Sold. Let’s go to the next slide. Slide 3 Inventory Turnover Measures the number of times on average the inventory is sold during a period. Cost of goods sold Average Inventory = Inventory Turnover Inventory at Jan. 1 + Inventory at Dec. 31 2 = Average Inventory Chapter 8 Module 7: Inventory Turnover And, let’s start with the first ratio: the Inventory Turnover Ratio. The Inventory Turnover Ratio measures the number of times on average that the company is able to sell its inventory during the year or the period— whatever period of time it may be. The Inventory Turnover Ratio tells us how many times the company is able to sell its inventory during the year.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 4 Chapter 8, Module 7 We can calculate the Inventory Turnover Ratio by taking the Cost of Goods Sold and dividing it by (/) what is called your Average Inventory.
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c8m7 - Introduction to Financial Accounting Chapter 8,...

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