The Second Step in Using the Gross Profit Method to Estimate

question 8

Multiple Choice

The second step in using the gross profit method to estimate ending inventory is to:

• A)estimate the cost of goods sold.
• B)calculate the cost of goods available for sale.
• C)estimate the ending inventory.
• D)estimate the beginning inventory.

---

Definitions:

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated by comparing net income and revenue.

Days' Sales

A financial metric that calculates the average time it takes for a company to convert its inventory into sales.

Receivables Ratio

The Receivables Ratio, also known as the Accounts Receivable Turnover Ratio, measures how efficiently a company collects cash from its customers by comparing sales to the average receivables.

Outstanding Accounts

Accounts or invoices that have been billed but not yet paid by customers.