If the company closes the year when the activities are at a peak,the number of days' sales in inventory would tend to be overstated and the liquidity would be overstated.

Question

Quizplus · Accepted Answer

Closing the year when activities are at a peak typically results in a lower number of days' sales in inventory because the cost of goods sold is higher, which makes the inventory turnover appear faster. Liquidity might not necessarily be overstated as it depends on other factors like current assets and liabilities, not just inventory levels.

If the Company Closes the Year When the Activities Are