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Accounting Igcse Cie

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  1. The-Purpose-Of-Accounting Igcse Cie
    3 主题
  2. Business-Documents Igcse Cie
    3 主题
  3. Books-Of-Prime-Entry Igcse Cie
    2 主题
  4. Double-Entry-Book-Keeping-With-Ledger-Accounts Igcse Cie
    8 主题
  5. The-Cash-And-Petty-Cash-Books Igcse Cie
    2 主题
  6. The-Trial-Balance-And-Correction-Of-Errors Igcse Cie
    4 主题
  7. Bank-Reconciliation Igcse Cie
    2 主题
  8. Control-Accounts Igcse Cie
    3 主题
  9. Capital-And-Revenue-Expenditure-And-Receipts Igcse Cie
    2 主题
  10. Depreciation-And-Disposal-Of-Non-Current-Assets Igcse Cie
    3 主题
  11. Other-Payables-And-Other-Receivables Igcse Cie
    2 主题
  12. Irrecoverable-Debts-And-Provision-For-Doubtful-Debts Igcse Cie
    2 主题
  13. Valuation-Of-Inventory Igcse Cie
    2 主题
  14. Financial-Statements-For-Sole-Traders Igcse Cie
    8 主题
  15. Financial-Statements-For-Partnerships Igcse Cie
    5 主题
  16. Financial-Statements-For-Limited-Companies Igcse Cie
    4 主题
  17. Financial-Statements-For-Clubs-And-Societies Igcse Cie
    5 主题
  18. Financial-Statements-For-Manufacturing-Businesses Igcse Cie
    3 主题
  19. Incomplete-Records Igcse Cie
    4 主题
  20. Accounting-Ratios Igcse Cie
    6 主题
  21. Accounting-Principles-And-Policies Igcse Cie
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Exam code:0452 & 0985

What are efficiency ratios?

  • Efficiency ratios are ways to measure how efficient a business is at managing processes linked to buying and selling goods

  • They compare trade receivables, trade payables and inventory with credit sales and purchases and the cost of sales

    • They indicate how efficient a business is at

      • Receiving payments from customers

      • Making payments to suppliers

      • Selling its inventory

  • The efficiency ratios are:

    • Rate of inventory turnover

    • Trade receivables turnover

    • Trade payables turnover

Rate of inventory turnover

What is the rate of inventory turnover?

What is the formula?

fraction numerator Cost space of space sales over denominator Average space inventory end fraction

How should the value be written?

Write as the number of times per year (X times)

How should the value be rounded?

Round to two decimal places

What does the value mean?

The value represents the number of times a business is able to fully sell and replace its inventory in a year

How can the ratio be improved?

  • Increase the volume of sales

  • Reduce the amount of inventory that is held by the business

  • It can be easier to think of the rate in terms of how long it takes for a business to fully sell its inventory without replacing it

    • If the rate of inventory is 2 then this means it takes the business half a year to fully sell its inventory without replacing it

    • You can divide 365 days by the rate to find the number of days it takes to fully sell the inventory without replacing it

  • A business aims to sell its inventory quickly

    • This prevents the inventory from going out of date or out of season

Worked Example

Omatola runs a small business by herself. She provides the following information for the year ended 29 February 2024.

$

Sales

40 000

Purchases

25 000

Inventory at 1 March 2023

7 000

Inventory at 29 February 2024

9 000

Calculate the rate of inventory turnover for the year ended 29 February 2024. The calculation should be correct to two decimal places.

Answer

  • Calculate the cost of sales

    • Opening inventory + Purchases – Closing inventory

    • $7 000 + $25 000 – $9 000 = $23 000

  • Calculate the average inventory

    • fraction numerator Opening space inventory space plus space Closing space inventory over denominator 2 end fraction

    • fraction numerator $ 7 space 000 space plus space $ 9 space 000 over denominator 2 end fraction equals $ 8 space 000

  • Calculate the rate of inventory turnover

    • fraction numerator Cost space of space sales over denominator Average space inventory end fraction

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