Unit 2 Chapter 12: Reporting and Managing inventory Flashcards
Net Sales
Total Sales less Sales returns
Cost of goods sold
A heading used in the income statement for all costs incurred to bring inventory into a location and condition ready for sale
Adjusted gross profit
Gross profit less inventory loss (or plus inventory gain)
Why is the purchase of inventory not classified as an expense?
The purchase of inventory does not involve an outflow of economic benefits because it does not decrease assets overall.
Equation for gross profit in income statement
Gross profit = Net sales less Cost of Good Sold
Gross profit Margin
A profitability indicator that measures the average mark up by calculating the percentage of Net Saless revenue that is retained as Gross Profit
Equation for Gross profit Margin
Gross Profit/Net sales x100
Inventory sheet
A listing of the quantity and value of each line of inventory on hand
Inventory turnover
An efficiency indicator that measures the average number of days it takes for a business to convert its inventory into sales
Eqaution for inventory turnover
(Average inventory x 365)/Cost of goods sold
Formula for average inventory
Inventory at start + inventory at end/2
2 methods for improving inventory turnover
- Increasing Sales through increase advertising and decreasing sales prices
- Decreasing inventory holdings
2 Strategies to manage inventory
- Rotate inventory
- Ensuring inventory is up to date