Accounting Chapter 11 & 12

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8 Terms

1
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Gross profit margin

A profitability indicator that measures average mark-up by calculating the percentage of sales revenue retained by gross profit.

2
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GPM Calculation

Gross profit/Net sales x100

3
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Net profit margin

A profitability indicator that measures expense control by calculating the percentage of sales revenue retained as net profit.

4
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NPM Calculation

Net profit/Net sales x100

5
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Inventory turnover

An efficiency indicator that measures the average number of days it takes for a business to convert inventory into a sale.

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Inventory turnover calculation

Average inventory/cost of goods sold x365

Average inventory= Inventory at start + inventory at end/2

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Physical count

Counting number of units each line of inventory infrequently because of time and cost matters

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Inventory rotation

Older inventory moved to front and new to the back so perishable items dont have to be discarded.