Chapter 5: Accounting for Merchandise operations

Question 1

Net income (loss)

Answer 1

Sales Revenues - COGS = Gross Profit
Gross Profit - Operating Expenses

Question 2

Evaluating Inventory

Answer 2

• Perpetual System
• Periodic System

Question 3

Periodic System

Answer 3

Companies determine COGS only at the end of the Accounting Period
-> Begining Inventory + Purchases - COGS = Ending Inventory

Question 4

Perpetual System

Answer 4

Companies keep detailed record of the costs of each inventory purchase & sale

Question 5

COGS

Answer 5

Sales x Purchase price

Question 6

Revenue

Answer 6

sales x selling price

Question 7

Profit

Answer 7

Revenue - COGS

Question 8

Recording Purchase under Perpetual System (Purchase invoice)

Answer 8

Inventory Dr (A+) & Accounts Payable Cr (L+)

Question 9

Recording Sale Under Perpetual System (Sale invoice)

Answer 9

1. Accounts Receivable Dr. (A+) & Sales Revenue Cr (E+)
2. COGS Dr (E+) & Inventory Cr (A-)