Merchandising Operations and Inventory Systems Flashcards
Describe merchandising operations and inventory systems.
Concept
Merchandising companies that purchase and sell directly to consumers
Merchandising Operations and Inventory Systems
retailers
Merchandising Operations and Inventory Systems
Concept
Merchandising companies that sell to retailers
Merchandising Operations and Inventory Systems
wholesalers
Merchandising Operations and Inventory Systems
Complete the sentence
The primary source of revenue for merchandising companies
Merchandising Operations and Inventory Systems
sales revenue
Merchandising Operations and Inventory Systems
Enumerate
A merchandising company has two categories of expense
Merchandising Operations and Inventory Systems
- Cost of goods sold
- Operating expenses
Merchandising Operations and Inventory Systems
Merchandising operations - expenses
Cost of goods sold
Merchandising Operations and Inventory Systems
- is the total cost of merchandise sold during the period.
- This expense is directly related to the revenue recognized from the sale of goods
Merchandising Operations and Inventory Systems
Merchandising operations
Operating expense
Merchandising Operations and Inventory Systems
- are incurred in the process of earning sales revenue.
- Note that operating expenses are a category of expenses, not a single line item on the income statement.
Merchandising Operations and Inventory Systems
Fill in the blank (merchandising company)
The difference between sales revenue and cost of goods sold is called ___
Merchandising Operations and Inventory Systems
gross profit
Merchandising Operations and Inventory Systems
Define (merchandising company)
gross profit
Merchandising Operations and Inventory Systems
The difference between sales revenue and cost of goods sold
Merchandising Operations and Inventory Systems
label the empty box
Merchandising Operations and Inventory Systems
Merchandising Operations and Inventory Systems
label the empty box
Merchandising Operations and Inventory Systems
Merchandising Operations and Inventory Systems
Fill in the blank
The operating cycle of a merchandising company is ordinarily ____ than that of a service company.
Merchandising Operations and Inventory Systems
longer / greater
Merchandising Operations and Inventory Systems
Multiple Choice
The purchase of merchandise inventory said its eventual sale:
1. shorten the cycle
2. lengthen the cycle
Merchandising Operations and Inventory Systems
lengthen the cycle
Merchandising Operations and Inventory Systems
Merchandising or servicing company
Merchandising Operations and Inventory Systems
Service Company
Merchandising Operations and Inventory Systems
Merchandising or servicing company
Merchandising Operations and Inventory Systems
Merchandising Company
Merchandising Operations and Inventory Systems
Flow of costs
merchandising company
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Merchandising Operations and Inventory Systems
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
perpetual inventory system
Merchandising Operations and Inventory Systems
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
periodic inventory system
Merchandising Operations and Inventory Systems
Describe
perpetual inventory system
Merchandising Operations and Inventory Systems
- 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
Complete the sentence
Under a perpetual inventory system, a company determines the cost of goods sold …
Merchandising Operations and Inventory Systems
each time a sale occurs
Merchandising Operations and Inventory Systems
Enumerate steps
Cost of goods sold under a periodic inventory system
Merchandising Operations and Inventory Systems
- Determine the cost of goods on hand at the beginning of the accounting period
- Add to it the cost of goods purchased
- 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
Label the empty box
Merchandising Operations and Inventory Systems
Merchandising Operations and Inventory Systems
Label the empty box
Merchandising Operations and Inventory Systems
Merchandising Operations and Inventory Systems
Name the inventory system
Merchandising Operations and Inventory Systems
Periodic Inventory System
Merchandising Operations and Inventory Systems
Name the inventory system
Merchandising Operations and Inventory Systems
Periodic Inventory System
Merchandising Operations and Inventory Systems
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
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
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
True
Merchanidising Operations and Inventory Systems
Indicate whether the statement is true or false
Sales revenue less cost of gross profit
Merchanidising Operations and Inventory Systems
True
Merchanidising Operations and Inventory Systems
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
False
* beginning inventory plus the cost of goods purchased equals cost of goods available for sale
Merchanidising Operations and Inventory Systems
Define
FOB shipping point
Merchanidising Operations and Inventory Systems
means that the seller places the goods free on board the carrier, and the buyer pays the freight costs
Merchanidising Operations and Inventory Systems
Define
FOB destination
Merchanidising Operations and Inventory Systems
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
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
FOB shipping point
Merchanidising Operations and Inventory Systems
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
FOB destination
Merchanidising Operations and Inventory Systems
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
debits (increases)
Merchandising Operations and Inventory Systems
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
purchase return
Merchandising Operations and Inventory Systems
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
credit terms
Merchandising Operations and Inventory Systems
Describe
2/10, n/30
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- 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
Why?
When the buyer pays an invoice within the discount period, the amount of the discount decreases inventory.
Merchandising Operations and Inventory Systems
because companies record inventory at cost, and by paying within the discount period, the buyer has reduced its cost
Merchandising Operations and Inventory Systems
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
Merchandising Operations and Inventory Systems
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
Merchandising Operations and Inventory Systems
Why
- merchandising companies should take all available discounts
- assume 2/10, n/30
Merchandising Operations and Inventory Systems
- 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
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
Merchandising Operations and Inventory Systems
make the entries under a Perpetual System
the seller
Merchandising Operations and Inventory Systems
- The seller increases debits Cash (or Accounts Receivable if a credit sale); increases credits Sales Revenue
- 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
account classification
Sales Returns and Allowances
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contra revenue account to sales revenue
Merchandising Operations and Inventory Systems
Define
contra revenue account
Merchandising Operations and Inventory Systems
is an account that is offset against a revenue account on the income statement
Merchandising Operations and Inventory Systems
contra revenue account to sales revenue
excessive returns and allowances may suggest
Merchandising Operations and Inventory Systems
- problems with inferior merchandise
- inaccuracies in filling orders
- errors in billing customers
- delivery or shipment mistakes
Merchandising Operations and Inventory Systems
contra revenue account to sales revenue
a decrease (debit) recorded directly to Sales Revenue would
Merchandising Operations and Inventory Systems
- obscure the relative importance of sales returns and allowances as a percentage of sales
Merchanidsing Operations and Inventory Systems
account classification
Sales Discounts
Merchandising Operations and Inventory Systems
- contra revenue account to sales revenue
- its normal balance is a debit
Merchandising Operations and Inventory Systems
normal balance
sales discounts
Merchandising Operations and Inventory Systems
debit
Merchandising Operations and Inventory Systems
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
Merchandising Operations and Inventory Systems
merchandising entries under perpetual
selling merchandise to customers
Merchandising Operations and Inventory Systems
Debit Cash or Accounts Receivable
* Credit Sales Revenue
Debit Cost of Goods Sold
* Credit Inventory
Merchandising Operations and Inventory Systems
merchandising entries under perpetual
granting sales returns or allowances to customers
Merchandising Operations and Inventory Systems
Debit Sales Returns and Allowances
* Credit Cash or Accounts Receivables
Debit Inventory
* Credit Cost of Goods Sold
Merchandising Operations and Inventory Systems
sales transactions under perpetual
receiving payment from customers within discount period
Merchandising Operations and Inventory Systems
- Debit Cash
- Debit Sales Discounts
- Credit Accounts Receivable
Merchandising Operations and Inventory Systems
purchase transactions under perpetual
purchasing merchandise for resale
Merchandising Operations and Inventory Systems
- Debit Inventory
- Credit Cash or Accounts Receivables
Merchandising Operations and Inventory Systems
purchase transactions under perpetual
paying freight costs on merchandise purchased; FOB shipping point
Merchandising Operations and Inventory Systems
- Debit Inventory
- Credit Cash
Merchandising Operations and Inventory Systems
purchase transactions under perpetual
receiving purchase returns or allowances from suppliers
Merchandising Operations and Inventory Systems
- Debit Cash or Accounts Payable
- Credit Inventory
Merchandising Operations and Inventory Systems
purchase transactions under perpetual
paying suppliers within discount period
Merchandising Operations and Inventory Systems
- debit Accounts Payable
- Credit inventory
- Credit Cash
Merchandising Operations and Inventory Systems
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
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
purpose
multiple-step income statement
Merchandising Operations and Inventory Systems
- 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
Steps
multiple-step income statement
Merchandising Operations and Inventory Systems
- income statement presentation of sales
- gross profit
- operating expenses and income from operations
- nonoperating activities
Merchandising Operations and Inventory Systems
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
nonoperating activities
Merchandising Operations and Inventory Systems
Define
nonoperating activities
Merchandising Operations and Inventory Systems
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
Concept
expenses incurred in the process of earning sales revenue
Merchandising Operations and Inventory Systems
operating expenses
Merchandising Operations and Inventory Systems
Define
operating expenses
Merchandising Operations and Inventory Systems
expenses incurred in the process of earning sales revenue
Merchandising Operations and Inventory Systems
We also can express a company’s gross profit as a percentage called the ____
Merchandising Operations and Inventory Systems
gross profit rate
Merchandising Operations and Inventory Systems
Explain
gross profit rate is more useful that the gross profit amount
Merchandising Operations and Inventory Systems
The rate expresses a more meaningful (qualitative) relationship between net sales and gross profit
Merchandising Operations and Inventory Systems
Explain
gross profit is not a true measure of profitability
Merchandising Operations and Inventory Systems
- it represent the merchandising profit
- operating expenses are not yet deducted
Merchandising Operations and Inventory Systems
