Chapter 5

Question 1

Merchandiser

Answer 1

earns profit by buying and selling merchandise

Question 2

What is Merchandise

Answer 2

Products, (called goods), that a company acquires for the purpose of reselling them to customers

Question 3

What is COGS

Answer 3

Cost of Goods sold - is the cost of merchandise sold to customers during a period; also commonly referred to as cost of sales

Question 4

Wholesaler

Answer 4

a company that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers

Question 5

retail

Answer 5

an intermediary that buys products from manufacturers or wholesalers and sells them to consumers

Question 6

net sales

Answer 6

calculated gross sales -(subtract) sales discounts - sales returns - allowances

Question 7

calculating profit for service company

Answer 7

revenues minus operating expenses = profit

Question 8

calculating profit for merchandiser company

Answer 8

net sales minus COGS = gross profit minus operating expenses = profit

Question 9

gross profit also called gross margin

Answer 9

the difference between net sales and COGS ( net sales minus COGS)

Question 10

products that a company owns for the purpose of selling them to customers

Answer 10

merchandise inventory

Question 11

operating cycle of a merchandiser

Answer 11

cash - purchases - merchandise inventory - cash collecting

Question 12

cycle of credit sales

Answer 12

cash - purchases - merchandise inventory - credit sales - accounts receivable - cash collection

Question 13

beginning inventory

Answer 13

merchandise not sold last accounting period

Question 14

Ending inventory

Answer 14

merchandise not sold this accounting period

Question 15

Net cost of purchases

Answer 15

merchandise purchased this accounting period

Question 16

What are the two types or accounting systems

Answer 16

Perpetual Inventory System and Periodic Inventory System

Question 17

What is Perpetual Inventory System?

Answer 17

a method of accounting that maintains continuous records of the cost of inventory on hand and the cost of goods sold

Question 18

what happens when a sale is made in perpetual inventory system

Answer 18

the inventory account is debited for the cost of each purchase and a corresponding accounts payable account is credited as items are received from the supplier

1. the sale to the customer is recorded with a debit to accounts receivable and a credit to sales
2. the cost of the inventory is recorded as a debit to COGS and the item is removed from the inventory account by crediting the inventory account

Question 19

what is periodic inventory system

Answer 19

a method of accounting that records the cost of inventory purchased by does not track the quantity on hand or sold to customers the records are updated at the end of each period to reflect the results of physical counts of the items on hand

Question 20

how to determine end inventory and cost of goods sold

Answer 20

company will take a physical count of inventory this will determine the dollar value of the asset inventory on the balance sheet at a period end as well as the COGS on the income statement

MI + purchases - ending MI = COGS

Question 21

MI

Answer 21

Merchandise Inventory

Question 22

inventory losses that occur as a result of theft or deterioration

Answer 22

called shrinkage

Question 23

nature of an expense

Answer 23

a method of classifying an expense based on its basic characteristics or what it is

Question 24

what is an example of identifying based off of nature of an expense

Answer 24

expenses are identified on the income statement as a depreciation, rent, property tax, and salaries the nature of the expense is being identified

Question 25

what is function of an expense

Answer 25

describes the grouping of expenses based on their purpose or what they relate to when expenses are grouped by function additional info must be discloses to show nature of expenses within each group

Question 26

whats an example of function grouping

Answer 26

income statement that shows COGS selling expenses and general and administrative expenses

Question 27

what is the full disclosure principle

Answer 27

requires financial statements to report all relevant info about the operations and financial positions of the entity
Info that is relevant but not included in the body of the statements is provided in notes to financial statements.

Question 28

Notes to financial statements

Answer 28

and integral part of financial statements that provides relevant info about the operations and financial position of the entity in addition to that contained in the financial statements

Question 29

what are the two general types of multiple step income statements

Answer 29

classifies multiple step format and multiple step format they can be used in both inventory system

Question 30

classified multiple step income statement

Answer 30

and income statement format that shows intermediate totals between sales and profit and detailed computations of net sales and COGS and is used primarily for internal reporting

Question 31

selling ecpenses

Answer 31

the expenses of promoting sales by displaying and advertising the merchandise making sales and delivering goods to customers

Question 32

general and administrative expenses

Answer 32

support the overall operations of a company and include expenses related to accounting, HR and financial management

Question 33

general and administrative expenses provides detail on what?

Answer 33

includes office salaries, office supplies, rent expense

Question 34

multiple step format

Answer 34

used for external reports the functional categories of selling expenses and general and administrative expenses are not included on a multiple step income statement ; operating expenses are listed by nature only

Question 35

single step income statement

Answer 35

another format of external reporting

shows items based on their function only
includes: COGS and an operating expense and shows only one subtotal for total expenses

Question 36

gross profit margin calculated as

Answer 36

net sales minus COGS divided by net sales = gross profit margin

Question 37

markup percentage

Answer 37

is the average increase in selling price of a product over the cost

example: is product cost $10 and retail in $15 your markup is $5 or 5/10 = 50%

Question 38

selling price calculated

Answer 38

selling price = cost x (1+markup %) = 10 x (1+ 0.50) = $15

Question 39

mark up percentage caculations

Answer 39

markup percentage = selling price minus cost divided by cost

Question 40

required selling price

Answer 40

selling price = cost divided by ( 1- target margin %)

Question 41

What is merchandise inventory

Answer 41

Products a company owns for resale to customers

Question 42

How do you say 2/10 n/30

Answer 42

2% 10 net 30 this means 2% discount for 10 days full amount due after 30 days