Ch 5.1 Merchandising Operations

Question 1

What is merchandising

Answer 1

buying products (inventory) to resell to customers

Question 2

what are the two charactersitics of inventory/ merchandise inventory

Answer 2

the company owns them

they are in a form ready for sale to customers

Question 3

3 types of merchandising companies

Answer 3

retailers, wholesalers, and manufacturers

Question 4

retailers

Answer 4

sell merch inventory directly to consumers

Question 5

wholesalers

Answer 5

sell merch to retailers

Question 6

manufacuteres

Answer 6

produce foods for sale to wholesalers or direct to relatiers

Question 7

how is a manufacturing company slighlty different from a merchandising company

Answer 7

not all of its invetory may be ready for sale yet

Question 8

what are the 3 categories of inventory

Answer 8

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

Question 9

operating cycle

Answer 9

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

Question 10

is operating cycle longer for merchandising or a serviece company

Answer 10

longer for a merchandising company!!!!

Question 11

what does the operating cycle for a service company look like

Answer 11

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

Question 12

what does operating cycle look like for merchandising companies

Answer 12

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

Question 13

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.)

Answer 13

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.)

Question 14

what does a long operating cycle mean

Answer 14

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

Question 15

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

Answer 15

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

Question 16

main source of revenue for merch companies

Answer 16

sales/sales revenue

Question 17

two categories of expenses for merchandising companies

Answer 17

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)

Question 18

Why do we report cogs separate from other expenses

Answer 18

management and users can monitor these costs relative to sales revenue

Question 19

GROSS PROFIT/GROSS MARGIN FORMULA

Answer 19

sales- cost of goods sold

Question 20

HOW Is income measured for a merchandising company

Answer 20

sales-cogs= gros sprofit

gross profit- operating expenses= income before tax

income before tax-income tax expense= net income

Question 21

inventory vs cogs

-both can be measured how?

Answer 21

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

dollars and units

Question 22

Flow of costs for a merchandising company

(focusing on inventory)

Answer 22

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)

Question 23

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

Answer 23

cogs (expense on statement of income)

ending inventory (Sofp asset)

Question 24

what are the 2 types of inventory system

Answer 24

perpeutla inventory system

periodic inventory system

Question 25

perpetual inventory system

Answer 25

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

Question 26

HOW do you record inventory purchases in perpetual inven syst

Answer 26

DR inventory CR Cash whenever inventory increases@

Question 27

HOW do you recordsale of inventory in perpetual inven syst

Answer 27

cogs obtained from inventory system, and transferred from inventory to cogs DR cogs CR Inventory

Question 28

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.

Answer 28

!! for updated recrods

Question 29

what must cogs and inventory do in perpetual inventory system

Answer 29

BALANCE AT ALL TIMES

Question 30

HOW to determine ending inventory under perpetual inventory system

Answer 30

beginning inventory + cogs purhased= cogs available for sale cogs available for sale- cogs = ending inventory

Question 31

benefits of perpetual inven syst

Answer 31

maintain optimumum inventory levels this is so improtant for merchandsiers

Question 32

shrinkage

Answer 32

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

Question 33

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

Answer 33

makes sense

Question 34

Periodic inventory system

Answer 34

detailed records are not kept cogs is determined only at the end of the accounting period

Question 35

MAIN diff between perpetual and periodic inventory systems

Answer 35

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

Question 36

HOW to determine the cogs under a periodic inventory system

Answer 36

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

Question 37

Key diff between periodic and perpetual inventory systems

Answer 37

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

Question 38

can you determine shrinkage in periodic inventory system?

Answer 38

no! cuz regular records were not kept!!

Question 39

Advantages of perpetual inventory systems

Answer 39

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

Question 40

advanatages of periodic inventory system

Answer 40

is cheaper comparing to equipment and system costs for perpetual systems is ismpler

Question 41

What is cost of goods sold?

Answer 41

the total cost of the merchandise sold to customers

Question 42

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

Answer 42

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

Question 43

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

Answer 43

it is inventory that has been sold

Question 44

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

Answer 44

a) Dr Inventory Cr Cash/AP Dr Cost of Goods Sold (Expense acc) Cr Inventory

Question 45

best quality in inventory account under perpetual inventory system

Answer 45

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

Question 46

what is the main distinction in periodic inventory system?

Answer 46

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