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Inventory is a balance sheet item. Costs added to inventory stay in inventory until the items are sold. There are many different ways to allocate these costs, at the discretion of the company. When items are sold, an allocation representing these items is moved from inventory to cost of sales (a.k.a. costs of goods sold) which becomes a cost for the period, match against an allocation of revenues for the period, which gives a figure for gross profit. Watch for trends in inventory from period to period, allowing for seasonality, and the gross margin (gross profit as a percent of revenues). The biggest thing to watch for is an unwarranted increase in inventory, which could indicate obsolescence, poor planning, or high returns. If inventories are too high, they are likely eventually to be written off.
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What is nature of account unrealized gross profit?
Unrealized gross profit refers to the profit anticipated from inventory that has not yet been sold. It represents the difference between the cost of goods sold and the expected selling price of inventory still held by the company. This figure is typically recorded as an asset on the balance sheet, reflecting potential future earnings. However, since it is unrealized, it does not impact the company's cash flow until the inventory is sold.
1 In comparing the accounts of a merchandising company with those of a service company what additional accounts would the merchandising company likely use assuming it employs a perpetual inventory?
Cost of goods sold and Gross profit
What is effect on current ratio if inventory is sold for profit?
When inventory is sold for profit, the current ratio typically improves. This is because the sale increases current assets (cash or accounts receivable) while decreasing current assets (inventory) by the same amount. However, if the sale generates a profit, it also increases retained earnings in equity, potentially enhancing the overall financial health of the company. As a result, the current ratio may reflect a more favorable position.
What methods do not require a physical inventory periodic inventory system perpetual inventory method retail method or gross profit method?
periodic inventory system
Inventory turnover ratio affect profit margin?
yes
Is an inevtory an asset or liability?
Inventory is a current assets of company because by selling the inventory company earns revenue and generate profit
Is it true that the more inventory a company has in stock the greater the company's profit?
Not necessarily. While having more inventory can lead to higher sales potential, it also incurs costs such as storage, insurance, and potential obsolescence. Excess inventory can tie up capital and increase the risk of markdowns if products do not sell. Therefore, effective inventory management is crucial for maximizing profit rather than simply increasing stock levels.
What is nature of account unrealized gross profit?
Unrealized gross profit refers to the profit anticipated from inventory that has not yet been sold. It represents the difference between the cost of goods sold and the expected selling price of inventory still held by the company. This figure is typically recorded as an asset on the balance sheet, reflecting potential future earnings. However, since it is unrealized, it does not impact the company's cash flow until the inventory is sold.
What effect does an overstatement of inventory have on a company's financial statements?
Overstatement of closing stock will inflate profit and overstatement of opening stock will have an inverse effect.
1 In comparing the accounts of a merchandising company with those of a service company what additional accounts would the merchandising company likely use assuming it employs a perpetual inventory?
Cost of goods sold and Gross profit
What is profit in a company?
profit in a company this is increase in revenue received by the company. profit in a company this is increase in revenue received by the company.
Can a non profit company also be a profit company?
No, a non-profit company cannot also be a profit company. You can only be one or the other and not both.
What is effect on current ratio if inventory is sold for profit?
When inventory is sold for profit, the current ratio typically improves. This is because the sale increases current assets (cash or accounts receivable) while decreasing current assets (inventory) by the same amount. However, if the sale generates a profit, it also increases retained earnings in equity, potentially enhancing the overall financial health of the company. As a result, the current ratio may reflect a more favorable position.
What methods do not require a physical inventory periodic inventory system perpetual inventory method retail method or gross profit method?
periodic inventory system
Is USAA a non-profit company?
No, USAA is not a non-profit company. It is a financial services company that operates as a for-profit organization.
Inventory turnover ratio affect profit margin?
yes
Which inventory method yields highest gross profit?
FIFO
