Ch 5 - Accounting for Merchandising Operations Flashcards
Gross profit is:
Sales revenue (net sales) - Cost of Goods Sold
A $750 purchase of merchandising inventory is made on June 13, terms 2/10, n30. On June 16, merchandise costing $50 is returned. What amount will be the payment in full on June 22?
A) $686
B) $700
C) $735
D) $750
A) 686. ($700 x 2% = $14).
When goods are shipped with the freight terms FOB shipping point in the perpetual inventory system:
A) The buyer pays the freight costs and debits Merchandising Inventory
B) The buyer pays the freight costs and debits Freight In
C) The seller pays the freight cost and debits Freight out
D) The seller pay the freight cost and debits Cost of Goods Sold.
A) The buyers pays the freight costs and debits Merchandising Inventory
Discounts offered to customers for early payment of the balance due:
A) will reduce the cost of the merchandise for the purchaser and increase the cost of goods sold for the seller
B) Reduce the cash paid by the purchaser, and the cash received by the seller, by the same amount
C) Are required by provincial law
D) Benefit the seller but generally do not benefit the purchaser
B) Reduce the cash paid by the purchaser and the cash received by the seller, by the same amount
To record the sale of goods for cash in a perpetual inventory system:
A) Only one journal entry is necessary to record the cost of goods sold and reduction of inventory.
B) Only one JE is necessary to record the receipt of cash and the sales revenue
C) Two JE’s are required; one to record the receipt of cash and sales revenue; and one to record the cost of goods sold and reduction of inventory
D) Two JE’s are necessary; one to record the receipt of cash and reduction of inventory, and one to record the cost of good sold and sales revenue
C)
The adjusted trial balance of White company reports a balance in sales of $18,000, Sales Discounts has a balance of $400, and Sales returns and allowances has a balance of $1500. White company's net sales would be equal to: A) $18000 B) $17,600 C) $16,100 D) $16,500
C) $16,100
Sales - Discounts - Returns/allowances
The sales in the accounting cycle for a merchandising company using the perpetual inventory system are the same as those for a service company except:
A) Closing JE are not required for a merchandising company
B) A post-closing trial balance is not required for a merchandising company
C) An additional adjusting entry in the case of any inventory shortages may be needed in a merchandising company
D) A multiple-step income statement is required for a merchandising company
C) An additional JE in the case of any inventory shortages may be needed in a merchandising company
Which of the following appears on both a single-step and multiple-step income statement for a merchandise company? A) Merchandise inventory B) Gross profit C) Profit from operations D) Cost of goods sold
D) Cost of goods sold
Net sales are $400,000, cost of goods sold is $310,000, operating expenses are $60,000 and other revenue are $5000. What are the gross profit margin and profit margin? A) 7.5% and 8.8% B) 22.5% and 7.4% C) 22.5% and 8.8% D) 77.5% and 8.8%
C) 22.5% and 8.8%
Under a periodic inventory system, when goods are purchased for resale by a company:
A) Purchases on account are debited to Merchandise Inventory
B) Purchases on account are debited to Purchases
C) Purchase returns are debited to Merchandise inventory
D) Freight costs are debited to Cost of Goods sold
B) Purchases on accounts are debited to Purchases
If beginning inventory is $60,000, purchases are $400,000, purchase returns and allowances are $25,000, freight in is $5000 and ending inventory is $50,000. What is the cost of goods sold? A) $385,000 B) $390,000 C) $410,000 D) $430,000
B) $390.000
Retailers vs Wholesalers
Retailers - sell direct to consumers
Wholesalers - sell to retailers
Calculating profit for service company
Revenue - operating expenses = profit(loss)
Do not have any cost of goods sold since they don’t sell any.
Calculating profit for Merchandising Company
Sales - Cost of goods sold = Gross profit.
Gross profit - operating expenses = profit (loss)
What is cost of goods sold
The total cost of the merchandise sold during the period. It is an expense directly related to revenue from the sale of the goods.
Perpetual inventory system vs periodic
Perpetual - keeps detailed records of each inventory purchase and sale
Periodic - do not keep detailed record. Cost of goods sold is determined only at the end of the accounting period via taking physical inventory count
How to determine cost of goods sold in periodic system?
- Determine beginning inventory (cost of goods on hand at beginning of period)
- Add the cost of goods purchased during the period
- Subtract the ending inventory (Cost of goods on hand at end - determined from physical inventory).
what happens when inventory items are sold under a perpetual inventory system?
Cost of goods sold (original purchase cost of merchandise) is transferred from the Merchandise Inventory Account (asset) to the Cost of Goods Sold account (expense).
Every time a sale occurs.
What is the Merchandise Inventory account used to record?
Goods purchased to sell to customers.
What is a subsidiary ledger?
A group of accounts that share a common characteristic (like all inventory accounts). It frees the general ledger from the details of individual balances.
Common for AR, AP, Inventory, Payroll
Ie merchandise inventory and accounts payable would have their own ledgers for each item it sells or for each account they are owe money to. This way it is easier to keep track.
What is the FOB point?
Free on Board.
The point where ownership is transferred. Can be expressed as FOB Destination or FOB Shipping point
FOB Shipping Point means? Who pays for shipping?
Ownership changes when the goods are placed on the carrier by the seller - the “shipping point”
The buyer pays the freight costs and is responsible for damages.
