DAYS INVENTORY Definition

Bookmark and Share

DAYS INVENTORY shows the average length of time items are in inventory, i.e., how many days a business could continue selling using only its existing inventory. The goal, in most cases, is to demonstrate efficiency through having a high turnover rate and therefore a low days' inventory. However, realize that this ratio can be unfavorable if either too high or too low. A company must balance the cost of carrying inventory with its unit and acquisition costs. The cost of carrying inventory can be 25% to 35%. These costs include warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence. Formula: Inventory / (Net Revenue / 365).

Learn new Accounting Terms

AUDIT STRATEGY is a game plan to attack audit issues before they are raised. Reasons and justifications for all positions must be understood and the foundation laid for taking the position.

PERSUASIVE is having the power to influence. Most audit evidence is persuasive, but not conclusive.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.