Interpret the effect of the following six independent events and transactions for each of the following: a.
Question:
Interpret the effect of the following six independent events and transactions for each of the following:
a. Accounts receivable turnover (currently equals 3.0).
b. Days' sales in receivables.
c. Inventory turnover (currently equals 3.0).
The three columns to the right of each event and transaction are identified as (a), (b), and (c) corresponding to the three liquidity measures. For each event and transaction indicate the effect as an increase (I), decrease (D), or no effect(NE).
Events and Transactions 1. Beginning inventory understatement of $500 is corrected this period. 2. Sales on account are underreported by $10,000. 3. $10,000 of accounts receivable are written off by a charge 4. $10,000 of accounts receivable are written off by a charge 5. Under the lower-of-cost-or-market method, inventory is 6. Beginning inventory overstatement of $500 is corrected to the allowance for doubtful accounts. to bad debts expense (direct method). reduced to market by $1,000. this period.
Step by Step Answer:
a b c Journal Entry COGS 500 1 NE NE D RE 500 2 ID NE Accts Recble Sales 3 I DNE Allow for Bad Debts ...View the full answer
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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