7,8,9,13 definitions

Question 1

Perpetual Inventory

Answer 1

A system of recording movements of inventory items on a continuous basis throughout a reporting period.
Advantage - greater control, identifies speed turnover.
disadvantage - additional record keeping

Question 2

FIFO

Answer 2

A system of recording inventory costs, based on the assumption that the first goods purchased are the first goods sold.

Question 3

Product cost

Answer 3

Cost added to the cost price of inventory if it can be isolated to a particular item of inventory on a logical basis.

Question 4

Period cost

Answer 4

Cost written off as an expense for the reporting period and cannot be recorded as part of the cost of a particular item of inventory.

Question 5

Net realizable value

Answer 5

Estimated selling price of an item of inventory, less any costs incurred in its selling, distributing and marketing..

Question 6

Inventory turnover

Answer 6

A financial indicator that determines how quickly a business can turn its inventory into sales.
Average inventory x 365/ Cost of goods sold.
To improve inventory turnover: Reduce the selling price of slow moving items, running promotions of targeted inventory lines.

Question 7

Accounts receivable turnover

Answer 7

A financial indicator that determines the average time taken by accounts receivable to settle their accounts.
Average accounts receivable x 365/ net credit sales.
To improve: Send reminder emails, offer discounts, threaten.

Question 8

Cash cycle

Answer 8

The process of turning inventory into sales, and then turning these sales into cash.
Gathered by adding inventory turnover and accounts receivable turnover.