Summary
The article is short. It talks about that suppliers cut chip inventory because of the market. The inventory is measured in days. Chip suppliers in the second quarter had an average of 69.6 days of inventory on hand. That is down from about 77 days from the first quarter and 81 days from the fourth quarter of 2008. The reason is that there is no imminent risk of chip shortages. In the third quarter, chip supplies and demands are in equilibrium.
Connection
Chapter 11 talks about merchandise businesses. In merchandise businesses, inventory is really important. They need to do physical inventory, use new technologies to keep tracks of inventory, and use proper accounting systems. All those things are used to make sure that businesses have details about their inventory, so they can figure out how much inventory costs and how much inventory they need for the next fiscal period. If a business can't sell most of the inventory it has, the business may not have enough cash to operate; if a business has less inventory they need, it can't develop. All the accounting information about inventory can be used to make decisions
Reflection
In the article, suppliers of chips know how many chips they need for the next fiscal period. For us who want to be accountants or entrepreneurs in the future, we need to be able to understand most or all of accounting for inventory. The equation for calculating inventory, Cost of beginning inventory + Cost of merchandise purchased - Cost of merchandise sold = Cost of ending inventory, seems hard, but if you know where to find these items, you are able to calculate the information you need. The basic of this whole chapter is this equation. We need to understand it.
