BUS3061 Holmes U5A1.docx - Running head RATIO ANALYSIS 1 Ratio Analysis Megan Holmes BUS 3061 Capella University RATIO ANALYSIS 2 Question 1 Proficient

# BUS3061 Holmes U5A1.docx - Running head RATIO ANALYSIS 1...

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Running head: RATIO ANALYSIS 1 Ratio Analysis Megan Holmes BUS 3061 Capella University

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RATIO ANALYSIS 2 Question 1: Proficient: Explain why proper inventory valuation is so important to the calculation of a company's "bottom line" net income. Having proper inventory valuation is important because an incorrect reported amount affects two inventory statements, the one at the end of the accounting period and the one at the beginning, as the one at the end is used for the next accounting period. What is the meaning of taking a physical inventory and why is it important to take a physical inventory when using a perpetual inventory system. Physical inventory is doing a detailed check of inventory that is physically present for a company. Taking physical inventory ensures that the company is fully aware of what they have versus what they need and also ensures customer satisfaction by knowing that what you say you have available is what is actually available. Distinguished: Explain the accountant's role regarding taking a physical inventory. Accountants do not actually do the physical inventory count but they do plan and coordinate it. They must use proper forms to record accurate counts and determine the totals. Question 2: Proficient: What is the cost flow assumption? Cost flow assumption suggests that the cost of inventory changes over time from when it is acquired to when it is built or sold.
RATIO ANALYSIS 3 What is meant by the physical flow of goods? The movement of goods and services from the business sector to the household sector and vice versa. What relationship exists between cost flows and the physical flow of goods in a company? Although physical flows are sometimes cited as support for an inventory method, accountants now recognize that an inventory method's assumed cost flows need not necessarily correspond with the actual physical flow of the goods. In fact, good reasons exist for simply ignoring physical flows and choosing an inventory method based on other criteria.

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