Topic 6: Accounting for Merchandising

Question 1

What is Gross Profit/Margin?

Answer 1

Gross profit represents the amount available to cover the operating expenses such as selling, admin and financial expenses.
Sales Revenue - COGS = Gross Profit

Question 2

What is Gross Profit Percentage?

Answer 2

It tells us the percentage of each sales dollar over the selling price.
Gross Profit / Sales * 100 = Gross Profit Percentage
(remember Gross Profit is Sales - COGS)

Question 3

What is COGS %?

Answer 3

COGS / Sales Revenue = GOGS %
GP % and COGS % will equal 100%

Question 4

What does the discount 2/10 N30 mean?

Answer 4

If you pay your account within 10 days you will receive a 2% discount. However, the balance must be paid within 30 days.

Question 5

What are the two inventory systems?

Answer 5

1. Perpetual
2. Periodic

Question 6

What is the Perpetual Inventory System?

Answer 6

It continuously records inventory changes in real time providing immediate reporting of the transactions and amount of inventory.

Question 7

What is the Periodic Inventory System?

Answer 7

The opening or beginning balance of inventory is not changed until the end of a period. This is done after the stock-take is performed. The stock-take determines the value of closing inventory.

Question 8

What is Inventory Turnover?

Answer 8

This ratio measures the number of times inventory is sold during the period.
COGS / Average Inventory*
*(Opening Inventory + Closing Inventory) / 2

Question 9

What is Days in Inventory Ratio?

Answer 9

It tells us the number of days inventory is held before it is sold.
Formula: 365 / Inventory Turnover