COMMERCE 1AA3 Lecture 21: Class 21
10 Mar 2017
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Inventory turnover means how many times the entire inventory is sold in a year. Days in inventory ratio = 365 days/inventory turnover. You want days in inventory to be small and inventory turnover to be high: fifo periodic, fifo perpetual, wac periodic, wac perpetual, both a) and b) Cost of goods sold is the account that is missing from the periodic system. Cogs = beg bal + purchases - end inv. **** look at the slide an example of gross profit method *** Cogs = beg bal + purch - end inv. End inv = beg bal + purch - cogs. Using gross pro t method is only necessary for the periodic system. It was the ending balance of last year because using periodic they only update their inventory once a year. That means that cogs is overstated by 10k. That means that gross pro t is understated by 10k. Beginning inventory the following year is down by 10k.
