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Inventory: Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
First in first out: In case of First in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out.
Last in first out: In case of Last in, First out, also known as LIFO method, the inventory which was bought in the last will be taken out first.
Inventory turnover ratio: It depicts the fraction of inventory sold or used by the company within a fiscal year. It states a ratio which shows the number of times goods were sold during an accounting period which thereby states the productivity or the efficiency level of the company regarding the inventory which apparently is the biggest asset for the company.
Days’ sales in inventory: It indicates the days taken up by the company to convert the stock items into actual sales.
1.
To compute: Current ratio, inventory turnover and days’ sales in inventory for 2017 as per:
(a) LIFO numbers
(b) FIFO numbers
2.
To interpret: Results of part 1.
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Chapter 5 Solutions
Financial and Managerial Accounting (Looseleaf) (Custom Package)
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