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ACCT 217 > Ch 5.1 Merchandising Operations > Flashcards

Ch 5.1 Merchandising Operations Flashcards

1
Q

What is merchandising

A

buying products (inventory) to resell to customers

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2
Q

what are the two charactersitics of inventory/ merchandise inventory

A

the company owns them

they are in a form ready for sale to customers

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3
Q

3 types of merchandising companies

A

retailers, wholesalers, and manufacturers

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4
Q

retailers

A

sell merch inventory directly to consumers

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5
Q

wholesalers

A

sell merch to retailers

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6
Q

manufacuteres

A

produce foods for sale to wholesalers or direct to relatiers

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7
Q

how is a manufacturing company slighlty different from a merchandising company

A

not all of its invetory may be ready for sale yet

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8
Q

what are the 3 categories of inventory

A

1) raw materials: have not been used in production prcoess
2) work in progress: inventory in the production process that is yet to be completed
3) finished goods: production has been completed, ready for sale

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9
Q

operating cycle

A

period from when cash is spent to buy inventory/provide a service to the time when cash is collected from customers

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10
Q

is operating cycle longer for merchandising or a serviece company

A

longer for a merchandising company!!!!

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11
Q

what does the operating cycle for a service company look like

A

performing services for cash or on account!

1) PERFORM SERVCIES FOR CUSTMOERS FOR CASH OR ON ACCOUNT
2) PAY CASH TO EMPLOYEES PERFORMING SERVICES
3) RECEIVE CASH FROM CUSTOMERS WHO PURCHASED ON ACC

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12
Q

what does operating cycle look like for merchandising companies

A

merchandise must be purchased for cash or on account before it can be sold to customers for cash or on account

1) purchase merch for cash or on acc
2) hold merchandise in stores or warehouses
3) pay for merch purchased on account
4) sell merch to customers for cash or on acc
5) recieve cash from customers that purchased on acc
REPEAT FROM 1

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13
Q

As merchandise is normally held in stores or warehouses for some time before being sold, the operating cycle includes the time between buying the inventory on account from suppliers and collecting the cash from its customers that purchase the inventory. Illustration 5.1 compares the operating cycles for service and merchandising companies. (Note that the timing of the receipt and payment of cash may vary from that shown for illustrative purposes.)

A

As merchandise is normally held in stores or warehouses for some time before being sold, the operating cycle includes the time between buying the inventory on account from suppliers and collecting the cash from its customers that purchase the inventory. Illustration 5.1 compares the operating cycles for service and merchandising companies. (Note that the timing of the receipt and payment of cash may vary from that shown for illustrative purposes.)

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14
Q

what does a long operating cycle mean

A

company has more money tied up in accounts receiveable or inventory; less liquidity

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15
Q

The longer the operating cycle, the longer a company must finance its inventory and accounts receivable.

A

The longer the operating cycle, the longer a company must finance its inventory and accounts receivable.

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16
Q

main source of revenue for merch companies

A

sales/sales revenue

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17
Q

two categories of expenses for merchandising companies

A

1) cogs: total ocst of merchandise that was sold during the period-> directly related to the revenue that is recognized from sale of those goods

2) operating expenses: incurred in the prcoess of earning sales (salaries, insurance, depreciation)

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18
Q

Why do we report cogs separate from other expenses

A

management and users can monitor these costs relative to sales revenue

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19
Q

GROSS PROFIT/GROSS MARGIN FORMULA

A

sales- cost of goods sold

20
Q

HOW Is income measured for a merchandising company

A

sales-cogs= gros sprofit

gross profit- operating expenses= income before tax

income before tax-income tax expense= net income

21
Q

inventory vs cogs

-both can be measured how?

A

inventory= goods avilabile for sale
cogs= goods that have been sold

dollars and units

22
Q

Flow of costs for a merchandising company

(focusing on inventory)

A

beginning inventory + cogs purchased = cogs available for sale

you can separate cogs available for sale into 2 categories (cost of goods sold and ending inventory; this is for measuring the sold goods and also unsold goods)

23
Q

how to note the cost of goods available for sale on financial statemetns

A

cogs (expense on statement of income)

ending inventory (Sofp asset)

24
Q

what are the 2 types of inventory system

A

perpeutla inventory system

periodic inventory system

25
Q

perpetual inventory system

A

detailed records are mainted for the cost of each product that is purchased and sold

PERPETUALLY SHOW QUANTITY AND COST OF INVENTORY SOLD/PURCHASED/LEFTOVER

26
Q

HOW do you record inventory purchases in perpetual inven syst

A

DR inventory
CR Cash

whenever inventory increases@

27
Q

HOW do you recordsale of inventory in perpetual inven syst

A

cogs obtained from inventory system, and transferred from inventory to cogs

DR cogs
CR Inventory

28
Q

Under a perpetual inventory system, the cost of goods sold and the reduction in inventory—both its quantity and cost—are recorded each time a sale occurs.

A

!! for updated recrods

29
Q

what must cogs and inventory do in perpetual inventory system

A

BALANCE AT ALL TIMES

30
Q

HOW to determine ending inventory under perpetual inventory system

A

beginning inventory + cogs purhased= cogs available for sale

cogs available for sale- cogs = ending inventory

31
Q

benefits of perpetual inven syst

A

maintain optimumum inventory levels

this is so improtant for merchandsiers

32
Q

shrinkage

A

when inventory counted is less than the amount reported on records!!! inventory spoliage or theft

33
Q

For control purposes, a physical inventory count is always taken at least once a year (and ideally more often) under a perpetual inventory system.

A

makes sense

34
Q

Periodic inventory system

A

detailed records are not kept

cogs is determined only at the end of the accounting period

35
Q

MAIN diff between perpetual and periodic inventory systems

A

perpetual: cogs is always known
Periodic: cogs is ONLY DETEMRINED AT THE END OF THE ACCOUNTING PERIOD

36
Q

HOW to determine the cogs under a periodic inventory system

A

beginning inventory + cogs = cogs available for sale

cogs avialbel for sale-ending inventory= cogs

** we count ending inventory at end and that shwen we knows cogs

37
Q

Key diff between periodic and perpetual inventory systems

A

the key difference is that, in a periodic inventory system, cost of goods sold, rather than ending inventory, is a residual number.

38
Q

can you determine shrinkage in periodic inventory system?

A

no! cuz regular records were not kept!!

39
Q

Advantages of perpetual inventory systems

A

1) up to date info on ending invenotry and cogs

2) enables companies to establish auto reordering based on predetermined minimum inventory levels (prevents over and under stocking)

3) can assess the shrinkage (determine how mcuh was stolen or spoiled)

4) reduces the needs and cost of frequeent inventory costs

40
Q

advanatages of periodic inventory system

A

is cheaper comparing to equipment and system costs for perpetual systems

is ismpler

41
Q

What is cost of goods sold?

A

the total cost of the merchandise sold to customers

42
Q

INVENTORY CAN BE IN ONLY ONE OF TWOPLACES!!! WHERE?

A

EITHER ending inventory (sofp) or cost of goods sold (soi)

43
Q

what is cost of goods sold??? WHAT DOES IT MEAN

A

it is inventory that has been sold

44
Q

in a perpetual inventory system- how do you record:
a) increases in inventory
b) decreases in inventory

A

a) Dr Inventory
Cr Cash/AP

Dr Cost of Goods Sold (Expense acc)
Cr Inventory

45
Q

best quality in inventory account under perpetual inventory system

A

it is always up to date!!! always adjusted in every sale for inventory and cogs so always updated

46
Q

what is the main distinction in periodic inventory system?

A

that we subtract

COG available for sale- ending inventory= cogs

we assume any goods that were not included in ending inventory were sold!! thus cogs

47
Q
A

ACCT 217 (62 decks)

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