Chapter 5: Merchandising Operations Flashcards
What is a merchandising operation?
The process of wholesalers selling products to retailers selling it to consumers
United stationers -> Office depot -> customer
Define sales revenue (or sales)
The primary source of revenues
What is the equation for income measurement?
Net income = Service revenues - operating expenses
How does the income measurement change regarding merchandising (NOT SERVICE BUSINESS)
Sales revenue - COST OF GOODS SOLD = GROSS PROFIT
GROSS PROFIT - operating expenses = net income
Define cost of goods sold
The total cost of merchandise sold during the period
Which of the following ARE NOT used in service business?
Cost of goods sold, gross profit, operating expenses, net income, and sales revenue
Cost of goods sold and gross profit are not used in a service business.
How do operating cycles differ between merchandising companies and service companies?
A merchandising company’s operating cycle is ordinarily longer than that of a service company.
What are the two type of inventory systems?
Perpetual inventory system and periodic inventory system
What is the flow of costs?
Beginning inventory / Cost of goods purchased –> Cost of goods available for sale –> Cost of goods sold/ending inventory.
What are the differences between perpetual and periodic inventory systems regarding record keeping?
Perpetual: Detailed records
Periodic: No detailed records
What are the differences between perpetual and periodic inventory systems regarding inventory stock?
Perpetual: Records continuously show inventory on hand for every item
Periodic: Only ending inventory, determined by physical count
What are the differences between perpetual and periodic inventory systems regarding the cost of goods sold?
Perpetual: Cost of goods sold calculated each time item is sold
Periodic: Cost of goods sold calculated at the end of a time period
What are the advantages of using a perpetual system?
- Good for merchandise with high value
- Good records help you know what you do and don’t have on hand at any time
- Better control over inventories than periodic system
How to calculate cost of goods sold?
Beginning inventory + net purchases = goods available for sale
Goods available for sale - ending inventory = cost of goods sold
When do you usually record products as inventory?
When goods are received from the seller
What is the difference between FOB Shipping Point and FOB Destination?
FOB Shipping Point: The buyer owns the product once it leaves the sellers establishment
FOB Destination: The buyer doesn’t own the product until it arrives to their establishment
How would you classify fright costs?
Operating expense
When the purchaser is dissatisfied with the product- what two options are given?
Purchase return and purchase allowance
Define purchase return
Goods are returned for credit or cash depending on how they were bought (buyer gets money back and does not keep the product)
Define purchase allowance
The buyer keeps the product but for a discounted price due to dissatisfaction.
Define purchase discount
A credit term that permits the buyer (retailer) to claim a cash discount for a faster payment
Ex: 2/10 n/30; you’ll get a 2% discount if you pay me within 10 days. But you will get no discount (pay net amount) if you pay me in 30 days.
What are the advantages of a purchase discount?
- Purchaser saves money
- Seller gets money faster
Regarding credit terms, what does 1/10 EOM mean?
1% discount if paid withing first 10 days of next month
Regarding credit terms, what does n/10 EOM mean?
Net amount (no discount) due within the first 10 days of the next month
If NMU Book Store (buyer) purchased printing paper for $3,800 from Office Max (seller) and we are preparing the JOURNAL ENTRY FOR NMU, what two accounts will be used for the $3,800? (Also state debit/credit)
Debit inventory $3,800
Credit accounts payable $3,800
Debit inventory because the printing paper is an increase in inventory.
Credit accounts payable because we did not pay in cash
NMU has inventory delivered and needs to pay the fright charges $150. How would this show up on the journal FOR NMU (remember debit/credit)
Debit inventory $150
Credit cash $150
Debit inventory because the shipping was part of the process in getting the inventory
Credit cash since it was paid for once delivered
If Office Max was to pay shipping charges for delivery inventory to NMU book store how would that look in the journal entry FOR OFFICE MAX? (remember debit/credit)
Debit Fright-Out (Expense)
Credit cash
Debit expense so the negative increases
Credit cash since you paid for it
If NMU Book store returned some inventory for $300 to Office Max, how would NMU journal this entry? (remember debit/credit)
Debit accounts payable
Credit inventory
Debit accounts payable because you “got some money back” but credit inventory since you “lost some inventory”
If NMU Book store didn’t need to pay Office Max until June but paid in May for a 2% discount on $3,500 (originally $3,800 but has a $300 return) what would the journal entry look like? (remember debit/credit)
Debit accounts payable for $3,500
Credit inventory for $70
Credit cash for $3,430
This is because we want both sides of the equation even
If NMU Bookstore paid office max in june for full price ($3,500) what would the journal entry look like? (remember debit/credit)
Debit Accounts payable $3,500
Credit cash $3,500
This is because accounts payable is a loan, or a liability, while cash is an asset. And both sides of the equation need to equal.
Assets = liabilities + stockholder’s equity
What 3 accounts do we need to close?
Revenue, dividend, expense, (cost of goods sold is an expense)
