Asked by Caleb Glenney on May 02, 2024
Verified
The inventory turnover ratio is significantly affected by the choice of inventory accounting method.
Inventory Turnover Ratio
A metric showing how many times a company has sold and replaced its inventory over a specific period, indicating efficiency in sales and inventory management.
Inventory Accounting Method
Techniques used to calculate the cost of goods sold and value of inventory, including FIFO, LIFO, and weighted average cost methods.
- Understand the impact of transactions on financial ratios.
Verified Answer
JM
Jessica MichelMay 07, 2024
Final Answer :
True
Explanation :
The inventory turnover ratio is based on the cost of goods sold and the average inventory during a specific period. The inventory accounting method affects the cost of goods sold and the value of the ending inventory, which in turn affects the inventory turnover ratio. For example, using the FIFO method (first in, first out) will result in a higher cost of goods sold and a lower value of ending inventory compared to using the LIFO method (last in, first out). This will result in a higher inventory turnover ratio for FIFO and a lower inventory turnover ratio for LIFO.
Learning Objectives
- Understand the impact of transactions on financial ratios.
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