accounting equations

Question 1

service industry net income equation

Answer 1

revenues - expenses = net income

Question 2

reporting income of a merchandiser

Answer 2

net sales 
- cost of goods sold 
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= gross profit
 - expenses 
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= net income

Question 3

inventory system or merchandiser inventory flow equation

Answer 3

beginning inventory
\+ net cost of purchases
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
=merchandise available sale
- ending inventory
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
= cost of goods sold

Question 4

gross margin ratio

Answer 4

net sales - cost of goods sold
÷ by net sales

or
gross profit ÷ net sales = gross margin

Question 5

inventory turn over ratio

Answer 5

cost of goods sold ÷ avg inventory

avg inventory = (beg inv + ending inv) ÷ 2

Question 6

days sales in inventory

Answer 6

ending inventory ÷ cost of goods sold × 365

Question 7

inventory error of understating ending inventory

Answer 7

cost of goods is overstated

net income is understated

Question 8

inventory error of understate beginning inventory

Answer 8

cost of goods is understated

net income is overstated

Question 9

inventory error of overstating ending inventory

Answer 9

cost of goods sold is understated

net income is overstated

Question 10

inventory error of overstating begining inventory

Answer 10

cost of goods is overrated

net income is understated