Inventory turnover calculation

Nunezertron Registered Posts: 20 Dedicated contributor 🌟 🐡 🌟
I'm self studying using BPP books and when I first came across the calculation for inventory turnover in Financial Performance the text book said that it was cost of sales/average inventory, or closing inventory if opening inventory was not available to get the average.
Now I'm on Financial Statements and the same calculation has been made in that book using cost of sales/closing inventory (the figure for opening inventory was available)

How have other people been taught this? Anyone know which would be regarded as the correct calculation in the assessment, or even whether either method is acceptable?


  • welshwizard
    welshwizard Registered Posts: 465

    If you look at the attached document (pg 12 of the Financial Statements (AQ2013) Study and Assessment Gudiance document published by the AAT), you will see that all formulae are given to you. Both mehods you describe can be used but, for the assessment, I would err on the side of caution and use the AAT published one.

    Your first port of call for questions like this should always be the unit study and assessment guidance documents available in the Study Support section of your MyAAT pages.
  • Nunezertron
    Nunezertron Registered Posts: 20 Dedicated contributor 🌟 🐡 🌟
    Thanks for the help welshwizard but that doesn't actually clear it up - the calculation listed there is cost of sales/inventories. It doesn't clarify whether it's closing inventory or average inventory that should be used.
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Use closing inventory.
    The AAT guidance notes are important as some ratio formulae differ from one exam to another.
    (This isn't as daft as it sounds, these ratios are there to provide a means of converting data into information that can be helpful. In different circumstances, and different users need different information.)
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