Ch 13

Question 1

Inventory turnover

Answer 1

The time taken to turn inventory into sales plays a major role in determining the success of a trading business.

Question 2

Evaluation of inventory turnover

Answer 2

previous turnover rates achieved in other periods
expectations of management
the types of inventory being sold should always be kept in mind when evaluating inventory turnover

Question 3

Accounts receivable turnover

Answer 3

The time taken to turn accounts receivable into cash is crucial to the liquidity of a trading business.

The turnover of accounts receivable will depend on the credit terms granted to credit customers.

Question 4

Accounts payable turnover

Answer 4

The time taken to settle accounts payable is important in maintaining good relationships with our suppliers.

If credit terms are constantly abused suppliers may refuse to supply us in the future.