Test 2: Merchandising

Question 1

Merchandising firms

Answer 1

buy finished products, warehouse and display the products for varying periods of time, and then resell the products.

Question 2

Manufacturers

Answer 2

convert raw materials and component parts into a finished product through the application of skilled labor and machine operations

Question 3

Wholesalers

Answer 3

buy finished products from manufacturing firms in large quantities

Question 4

Retailers

Answer 4

typically buy products from
wholesale distributors and resell the finished products to individual consumers in what
is referred to as a business-to-consumer transaction (a B2C transaction)

Question 5

Three main parts of an operating cycle

Answer 5

1) The purchase of merchandise and its placement in inventory;
2) the removal of merchandise from inventory
when sold and delivered to the customer; and
3) the receipt of cash from the customer in
payment for a cash-and-carry or prior credit purchase

Question 6

Sale on account (also referred to

as sale on credit)

Answer 6

A purchase of merchandise made on a credit account that needs to be paid

Question 7

open account

Answer 7

is a charge account provided by a retailer for its customers.

Question 8

perpetual inventory system

Answer 8

A way to track merchandise inventory (The cost of merchandise sold is calculated after
every sale, and consequently, the inventory balance is kept “perpetually” up-to-date)

Question 9

periodic inventory system

Answer 9

A way to track merchandise inventory (the cost of merchandise sold is only calculated “periodically,” specifically when a physical count of the inventory is undertaken, which usually occurs only at the end of a fiscal period. As a consequence, the actual inventory balance remains unknown until the end of a fiscal period)

Question 10

What is it called when a buyer is responsible for the cost of shipping?

Answer 10

FOB shipping point

Question 11

What is it called when the seller has responsibility for the cost of shipping?

Answer 11

FOB Destination

Question 12

Difference between purchase return and purchase allowance?

Answer 12

A purchase return means you get back the money you payed and give back the merchandise. A purchase allowance means the firm credits your account so you get a discount but keep the product.

Question 13

What is credit period

Answer 13

the maximum amount of days a buyer has to pay for the purchase they made (only when on credit)

Question 14

What is a discount period?

Answer 14

maximum amount of time, stated in
days, that a purchaser has within which to pay the seller if the purchaser wants to claim
the cash discount

Question 15

COGS

Answer 15

is the total cost of merchandise sold to customers during the accounting period

Question 16

Net Sales

Answer 16

gross sales revenue generated through merchandise sales less any sales revenue given up through sales returns and allowances and any earned sales (cash) discounts

Question 17

Gross profit, or gross profit on sales

Answer 17

defined as the difference between net sales and Cost of Goods Sold and reveals the amount of sales revenue
remaining after subtracting the cost of products sold

Question 18

gross profit percentage

Answer 18

that is the rate at which a company earns
gross profit on its sales revenue

GPP=Gross Profit On Sale/Net Sales

Question 19

return on sales ratio

Answer 19

reveals the net income earned on
each dollar of net sales and is computed by dividing net income by net sales…also called profit margin…
ROSR=Net Income/Net Sales