Which one of the following statements related to the inventory period is correct?

Question

Quizplus · Accepted Answer

The inventory period is the average number of days a firm holds inventory on its shelves. It is calculated by dividing the average inventory by the cost of goods sold and multiplying by 365 days. A higher inventory turnover rate would decrease the inventory period, not increase it. The length of the cash cycle includes the inventory period, but it is not solely determined by it. The inventory period is not equal to the operating cycle minus the accounts payable period; it is simply a component of the operating cycle. The inventory period can affect the cash cycle if inventory is held for extended periods, tying up funds that could be used for other business purposes.

Which One of the Following Statements Related to the Inventory