Topic 4: Accounting for Merchandising Operations

Question 1

Merchandise

Answer 1

Goods that a company owns and expects to sell to customers; also called merchandise inventory or inventory.

Question 2

Merchandiser

Answer 2

Entity that earns income by buying and selling merchandise.

Question 3

Wholesaler

Answer 3

Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.

Question 4

Retailer

Answer 4

Intermediary that buys products from manufacturers or wholesalers and sells them to consumers

Question 5

Cost of goods sold

Answer 5

Cost of inventory sold to customers during a period; also called cost of sales.

Question 6

Gross Profit

Answer 6

Net sales minus cost of goods sold; also called gross margin.

Question 7

Merchandise inventory

Answer 7

Goods that a company owns and expects to sell to customers; also called merchandise or inventory.

Question 8

Net method

Answer 8

Method of recording purchases at the full invoice price less any cash discounts.

Question 9

Contra revenue account

Answer 9

Also known as sales discounts. Subtracted from sales when computing net sales.

Question 10

Sales Discounts

Answer 10

A contra revenue account. Subtracted from sales when computing net sales.

Question 11

Sales Returns on Allowances

Answer 11

Refunds or credits given to customers for unsatisfactory merchandise are recorded (debited) in Sales Returns and Allowances, a contra account to Sales. In addition, estimates of future sales returns and allowances (related to current-period sales) are made with an adjusting entry that debits Sales Returns and Allowances; this results in sales being recorded net of expected returns and allowances. Sales Returns and Allowances is a temporary account that is closed each period.