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Principles of Accounting > Merchandising Operations and Inventory Systems > Flashcards

Merchandising Operations and Inventory Systems Flashcards

Describe merchandising operations and inventory systems.

1
Q

Concept

Merchandising companies that purchase and sell directly to consumers

Merchandising Operations and Inventory Systems

A

retailers

Merchandising Operations and Inventory Systems

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2
Q

Concept

Merchandising companies that sell to retailers

Merchandising Operations and Inventory Systems

A

wholesalers

Merchandising Operations and Inventory Systems

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3
Q

Complete the sentence

The primary source of revenue for merchandising companies

Merchandising Operations and Inventory Systems

A

sales revenue

Merchandising Operations and Inventory Systems

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4
Q

Enumerate

A merchandising company has two categories of expense

Merchandising Operations and Inventory Systems

A
  1. Cost of goods sold
  2. Operating expenses

Merchandising Operations and Inventory Systems

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5
Q

Merchandising operations - expenses

Cost of goods sold

Merchandising Operations and Inventory Systems

A
  1. is the total cost of merchandise sold during the period.
  2. This expense is directly related to the revenue recognized from the sale of goods

Merchandising Operations and Inventory Systems

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6
Q

Merchandising operations

Operating expense

Merchandising Operations and Inventory Systems

A
  1. are incurred in the process of earning sales revenue.
  2. Note that operating expenses are a category of expenses, not a single line item on the income statement.

Merchandising Operations and Inventory Systems

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7
Q

Fill in the blank (merchandising company)

The difference between sales revenue and cost of goods sold is called ___

Merchandising Operations and Inventory Systems

A

gross profit

Merchandising Operations and Inventory Systems

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8
Q

Define (merchandising company)

gross profit

Merchandising Operations and Inventory Systems

A

The difference between sales revenue and cost of goods sold

Merchandising Operations and Inventory Systems

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9
Q

label the empty box

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

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10
Q

label the empty box

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

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11
Q

Fill in the blank

The operating cycle of a merchandising company is ordinarily ____ than that of a service company.

Merchandising Operations and Inventory Systems

A

longer / greater

Merchandising Operations and Inventory Systems

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12
Q

Multiple Choice

The purchase of merchandise inventory said its eventual sale:
1. shorten the cycle
2. lengthen the cycle

Merchandising Operations and Inventory Systems

A

lengthen the cycle

Merchandising Operations and Inventory Systems

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13
Q

Merchandising or servicing company

Merchandising Operations and Inventory Systems

A

Service Company

Merchandising Operations and Inventory Systems

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14
Q

Merchandising or servicing company

Merchandising Operations and Inventory Systems

A

Merchandising Company

Merchandising Operations and Inventory Systems

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15
Q

Flow of costs

merchandising company

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

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16
Q

Fill in the blank

In a ___, companies keep detailed records of the cost of each inventory purchase and sale. These records continuously show the inventory should be on hand for every item.

Merchandising Operations and Inventory Systems

A

perpetual inventory system

Merchandising Operations and Inventory Systems

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17
Q

Fill in the blank

In a ___, companies do not keep detailed inventory records throughout the period. Instead, they determine the cost of goods sold only at the end of the accounting period.

Merchandising Operations and Inventory Systems

A

periodic inventory system

Merchandising Operations and Inventory Systems

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18
Q

Describe

perpetual inventory system

Merchandising Operations and Inventory Systems

A
  • Companies keep detailed records of the cost of each inventory purchase and.
  • These records continuously–perpetually–show the inventory that should be on hand for every item.

Merchandising Operations and Inventory Systems

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19
Q

Complete the sentence

Under a perpetual inventory system, a company determines the cost of goods sold …

Merchandising Operations and Inventory Systems

A

each time a sale occurs

Merchandising Operations and Inventory Systems

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20
Q

Enumerate steps

Cost of goods sold under a periodic inventory system

Merchandising Operations and Inventory Systems

A
  1. Determine the cost of goods on hand at the beginning of the accounting period
  2. Add to it the cost of goods purchased
  3. Subtract the cost of goods on hand as determined by the physical inventory count at the end of the accounting period

Merchandising Operations and Inventory Systems

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21
Q

Label the empty box

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

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22
Q

Label the empty box

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

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23
Q

Name the inventory system

Merchandising Operations and Inventory Systems

A

Periodic Inventory System

Merchandising Operations and Inventory Systems

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24
Q

Name the inventory system

Merchandising Operations and Inventory Systems

A

Periodic Inventory System

Merchandising Operations and Inventory Systems

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25
Q

Indicate whether the statement is true or false

The primary source of revenue for a merchandising company result from performing services for customers

Merchanidising Operations and Inventory Systems

A

False
* the primary source of revenue for a service company (not a merchandising company) results from performing services for customers

Merchanidising Operations and Inventory Systems

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26
Q

Indicate whether the statement istrue or false

The operating cycle of a service company isusually shorter than that of a merchandising company

Merchanidising Operations and Inventory Systems

A

True

Merchanidising Operations and Inventory Systems

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27
Q

Indicate whether the statement is true or false

Sales revenue less cost of gross profit

Merchanidising Operations and Inventory Systems

A

True

Merchanidising Operations and Inventory Systems

28
Q

Indicate whether the statement is true or false

ending inventory plus the cost of goods purchased equals cost of goods available for sale

Merchanidising Operations and Inventory Systems

A

False
* beginning inventory plus the cost of goods purchased equals cost of goods available for sale

Merchanidising Operations and Inventory Systems

29
Q

Define

FOB shipping point

Merchanidising Operations and Inventory Systems

A

means that the seller places the goods free on board the carrier, and the buyer pays the freight costs

Merchanidising Operations and Inventory Systems

30
Q

Define

FOB destination

Merchanidising Operations and Inventory Systems

A

means that the seller places the goods free on board to the buyer’s place of business, and the seller plays the freight

Merchanidising Operations and Inventory Systems

31
Q

Concept

means that the seller places the goods free on board the carrier, and the buyer pays the freight costs

Merchanidising Operations and Inventory Systems

A

FOB shipping point

Merchanidising Operations and Inventory Systems

32
Q

Concept

means that the seller places the goods free on board to the buyer’s place of business, and the seller pays the freight

Merchanidising Operations and Inventory Systems

A

FOB destination

Merchanidising Operations and Inventory Systems

33
Q

freight costs incurred by the buyer

  • When the buyer incurs the transportation costs, these costs are considered part of the cost of purchasing inventory
  • Therefore, the buyer ____ the inventory account.

Merchandising Operations and Inventory Systems

A

debits (increases)

Merchandising Operations and Inventory Systems

34
Q

Concept

The purchaser may return the goods to the seller for credit if the sale was made on credit, or for a cash refund if the purchase was for cash.

Merchandising Operations and Inventory Systems

A

purchase return

Merchandising Operations and Inventory Systems

35
Q

Concept

  • specifies the amount of the cash discount and time period in which it is offered.
  • they also indicate the time period in which the purchaser is expected to pay the full invoice price if the discount is not taken

Merchandising Operations and Inventory Systems

A

credit terms

Merchandising Operations and Inventory Systems

36
Q

Describe

2/10, n/30

Merchandising Operations and Inventory Systems

A
  • two-ten, net thirty
  • the buyer may take a 2% cash discount on the invoice price, less (“net of”) any returns or allowances, if payment is made within 10 days of the invoice date ( the discount period)

Merchandising Operations and Inventory Systems

37
Q

Why?

When the buyer pays an invoice within the discount period, the amount of the discount decreases inventory.

Merchandising Operations and Inventory Systems

A

because companies record inventory at cost, and by paying within the discount period, the buyer has reduced its cost

Merchandising Operations and Inventory Systems

38
Q

Make the adjustment

  • Sauk Stereo pays the balance due of $3,500 (gross invoice price of $3,800 less purchase returns and allowances of $300) within the discount period
  • terms: 2/10, n/30

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

39
Q

Make the adjustment

  • Sauk Stereo failed to take the discount and instead made full payment of $3,500 on June 3

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

40
Q

Why

  • merchandising companies should take all available discounts
  • assume 2/10, n/30

Merchandising Operations and Inventory Systems

A
  • because passing up a discount is tantamount to paying interest.
  • 2/10, n/30 = [2% x (365 / 20)] = 36.5%. Obviously, it would be to borrow from the bank at interest rates better than 36.5%.

Merchandising Operations and Inventory Systems

41
Q

Record the transactions

On September 5, the Company buys merchandise on account from Business. The selling price of the goods to Business is $1,500, and the cost to Business was $800. On September 8, Company returns defective goods with a selling price of $200.

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

42
Q

make the entries under a Perpetual System

the seller

Merchandising Operations and Inventory Systems

A
  1. The seller increases debits Cash (or Accounts Receivable if a credit sale); increases credits Sales Revenue
  2. The seller increases debits Cost of Goods Sold and decreases credits Inventory for the cost of goods sold
    * the Inventory account will show at all times the amount of inventory that should be on hand.

Merchandising Operations and Inventory Systems

43
Q

account classification

Sales Returns and Allowances

Merchandising Operations and Inventory Systems

A

contra revenue account to sales revenue

Merchandising Operations and Inventory Systems

44
Q

Define

contra revenue account

Merchandising Operations and Inventory Systems

A

is an account that is offset against a revenue account on the income statement

Merchandising Operations and Inventory Systems

45
Q
A
46
Q

contra revenue account to sales revenue

excessive returns and allowances may suggest

Merchandising Operations and Inventory Systems

A
  • problems with inferior merchandise
  • inaccuracies in filling orders
  • errors in billing customers
  • delivery or shipment mistakes

Merchandising Operations and Inventory Systems

47
Q

contra revenue account to sales revenue

a decrease (debit) recorded directly to Sales Revenue would

Merchandising Operations and Inventory Systems

A
  • obscure the relative importance of sales returns and allowances as a percentage of sales

Merchanidsing Operations and Inventory Systems

48
Q

account classification

Sales Discounts

Merchandising Operations and Inventory Systems

A
  • contra revenue account to sales revenue
  • its normal balance is a debit

Merchandising Operations and Inventory Systems

49
Q

normal balance

sales discounts

Merchandising Operations and Inventory Systems

A

debit

Merchandising Operations and Inventory Systems

50
Q

Record the transactions on the books of Company

On September 5, Company sells merchandise on account to Business. The selling price of the goods is $1,300, and the cost to Company was $800. One September 8, Business returns defective goods with an initial selling price of $200 and a fair value of $30.

Merchandising Operations and Inventory Systems

A

Merchandising Operations and Inventory Systems

51
Q

merchandising entries under perpetual

selling merchandise to customers

Merchandising Operations and Inventory Systems

A

Debit Cash or Accounts Receivable
* Credit Sales Revenue

Debit Cost of Goods Sold
* Credit Inventory

Merchandising Operations and Inventory Systems

52
Q

merchandising entries under perpetual

granting sales returns or allowances to customers

Merchandising Operations and Inventory Systems

A

Debit Sales Returns and Allowances
* Credit Cash or Accounts Receivables

Debit Inventory
* Credit Cost of Goods Sold

Merchandising Operations and Inventory Systems

53
Q

sales transactions under perpetual

receiving payment from customers within discount period

Merchandising Operations and Inventory Systems

A
  1. Debit Cash
  2. Debit Sales Discounts
    • Credit Accounts Receivable

Merchandising Operations and Inventory Systems

54
Q

purchase transactions under perpetual

purchasing merchandise for resale

Merchandising Operations and Inventory Systems

A
  1. Debit Inventory
    • Credit Cash or Accounts Receivables

Merchandising Operations and Inventory Systems

55
Q

purchase transactions under perpetual

paying freight costs on merchandise purchased; FOB shipping point

Merchandising Operations and Inventory Systems

A
  1. Debit Inventory
    • Credit Cash

Merchandising Operations and Inventory Systems

56
Q

purchase transactions under perpetual

receiving purchase returns or allowances from suppliers

Merchandising Operations and Inventory Systems

A
  1. Debit Cash or Accounts Payable
    • Credit Inventory

Merchandising Operations and Inventory Systems

57
Q

purchase transactions under perpetual

paying suppliers within discount period

Merchandising Operations and Inventory Systems

A
  1. debit Accounts Payable
    • Credit inventory
    • Credit Cash

Merchandising Operations and Inventory Systems

58
Q

prepare closing entries

  • The adjusted trail balance of Celine’s Sports Wear Shop at December 31 shows Inventory $25,000
  • Sales Revenue $162,400
  • Sales Returns and Allowances $4,800
  • Sales Discounts $3,600
  • Cost of Goods Sold $110,000
  • Rent Revenue $6,000
  • Freight-Out $1,800
  • Rent Expense $8,800
  • Salries and Wages Expense $22,000

Merchandising Operations and Inventory Systems

A

Sales Revenue - 162,400
Rent Revenue - 6,000

  • Income Summary - 168,400

Income Summary - 151,000

  • Cost of Goods Sold - 110,000
  • Sales Returns and Allowances - 4,800
  • Sales Discounts - 3,600
  • Freight-Out - 1,800
  • Rent Expense - 8,800
  • Salaries and Wages Expense - 22,000

Income Summary - 17,400
* Owner’s Capital - 17,400

Merchandising Operations and Inventory Systems

59
Q

purpose

multiple-step income statement

Merchandising Operations and Inventory Systems

A
  • a multiple-step statement distinguishes between operating and nonoperating activities
  • The statement highlights intermediate components of net income and shows subgroupings of expenses

Merchandising Operations and Inventory Systems

60
Q

Steps

multiple-step income statement

Merchandising Operations and Inventory Systems

A
  1. income statement presentation of sales
  2. gross profit
  3. operating expenses and income from operations
  4. nonoperating activities

Merchandising Operations and Inventory Systems

61
Q

Concept

consist of various revenues and expenses and gains and losses that are unrelated to the company’s main line of operations

Merchandising Operations and Inventory Systems

A

nonoperating activities

Merchandising Operations and Inventory Systems

62
Q

Define

nonoperating activities

Merchandising Operations and Inventory Systems

A

consist of various revenues and expenses and gains and losses that are unrelated to the company’s main line of operations

Merchandising Operations and Inventory Systems

63
Q

Concept

expenses incurred in the process of earning sales revenue

Merchandising Operations and Inventory Systems

A

operating expenses

Merchandising Operations and Inventory Systems

64
Q

Define

operating expenses

Merchandising Operations and Inventory Systems

A

expenses incurred in the process of earning sales revenue

Merchandising Operations and Inventory Systems

65
Q

We also can express a company’s gross profit as a percentage called the ____

Merchandising Operations and Inventory Systems

A

gross profit rate

Merchandising Operations and Inventory Systems

66
Q

Explain

gross profit rate is more useful that the gross profit amount

Merchandising Operations and Inventory Systems

A

The rate expresses a more meaningful (qualitative) relationship between net sales and gross profit

Merchandising Operations and Inventory Systems

67
Q

Explain

gross profit is not a true measure of profitability

Merchandising Operations and Inventory Systems

A
  • it represent the merchandising profit
  • operating expenses are not yet deducted

Merchandising Operations and Inventory Systems

Principles of Accounting (15 decks)

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