Ms. Smith, owner of Smith Dental Supply Company, and has been in business for one year. She applied for a $150,000 loan from her bank. The bank requested financial statements for her shop as a basis for considering her loan request. Ms. Smith purchased a large amount of inventory from her supplier who gave her a good discount if she paid cash. Right now, she has a warehouse full of products to be sold and less cash in her bank account.

Unfortunately, her sales are lagging, her cost of goods is higher than she thinks it should be which is causing her net income to be smaller than she thinks. She wants her accountant to explain to her how inventory amount is good, but sales and the related cost of goods sold are causing the income to look less robust. How are these related to the operations of the business. As the loan officer, what is of concern to you?