7.1 - Merchandising Buisnesses

Question 1

Service Company

Answer 1

company which provides services to customers

Question 2

Merchandising Company

Answer 2

company which sells products

Question 3

Manufacturing Company

Answer 3

makes finished products from raw materials or partially processed products

Question 4

Merchandise

Answer 4

goods bought for resale

Question 5

Merchandise Inventory

Answer 5

account representing the total value of goods on hand

Question 6

Cost of Goods Sold

Answer 6

expense(?) account recording all costs associated with merchandise that has been sold

would be same value as sales?

Question 7

Net Income occurs when revenue from sales exceeds both _______________ and ______________.

Answer 7

Cost of Goods Sold, Operating Expenses

Question 8

Gross Profit

Answer 8

Revenue - COGS

Question 9

Revenue - COGS

Answer 9

Gross Profit

Question 10

Schedule

Answer 10

a supporting statement that provides details of an item on a main statement

main statement example: balance sheet

Examples:
* Schedule of Accounts Recieveable
* Schedule of Cost of Goods Sold

Question 11

Income Statements for Merchandising Companies are separated into ___ sections.

Answer 11

3

Question 12

General Structure of Schedule of Cost of Goods Sold

Answer 12

1. State Beginning Merchandise Inventory
2. Net Purchase Cost
3. Calculate Total Cost of Merchandise for Sale
4. Less: Merchandise Inventory, [insert end of period]
5. COGS

Question 13

Factors which Affect Net Purchase Cost

Answer 13

• Purchases
• Purchases Returns and allowances
• Purchase Discounts

Question 14

Purchase Returns and Allowances

Answer 14

account used to record goods that the merchandise company returns to the supplier
* decreases cost of purchases (a.k.a. COGS)

decreases COGS –> increases O.E. –> credit account(?)

Question 15

Purchases Discount

Answer 15

account which records the cash discount off an invoice price
* decreases cost of purchases (a.k.a. COGS)

decreases COGS –> increases O.E. –> credit account(?)

Question 16

Transportation-In

Answer 16

account which records the cost for transporting the goods to the buisness
–> “shipping”

altarnate names:
* Transportation on Purchases
* Freight-in

Question 17

Methods of Keeping Inventory

Answer 17

1. Periodic Inventory
2. Perpetual Inventory

Question 18

Perpetual Inventory

Answer 18

a continuous record of all merchandise on hand (a.k.a inventory)

Merchandise Inventory Account is updated daily/in real time

Question 19

Periodic Inventory

Answer 19

making a physical inventory count at the end of each physical period for valuation purposes

“for valuation purposes” = to determine the value of the Merchandise Inventory

Question 20

Range of Account Numbers for Cost of Goods Sold

Answer 20

500-599

Question 21

Range of Account Numbers for Expenses

Answer 21

600-699

Question 22

Accounts which fall under the “Cost of Goods Sold” Section

Answer 22

• Purchases
• Purchases Returns and Allowances
• Purchases Discounts
• Transportation-in
• Cost of Goods Sold

Question 23

Merchandise is a(n) _____________ account.

Answer 23

Current Asset

Question 24

Sales Returns and Allowances

Answer 24

an account used by the seller to record merchandise returned by a customer

Question 25

Sales returns and allowances __________ sales revenue.

Answer 25

reduces

Question 26

# What balance do revenue accounts usually hold? What balance does the Sales Returns and Allowances hold?

Answer 26

Debit

Question 27

Sales Returns and Allowances amount is subtracted from the Sales figure in the __________ section on the _________________________.

Answer 27

revenue, income statement

Question 28

Credit Invoice | a.k.a. Credit Note / Credit Memorandum

Answer 28

a source document issued by the seller to indicate the amount of credit allowed to a customer for returned or defective goods

Question 29

Sales discounts are indicated in the _____________.

Answer 29

terms of sale

Question 30

Sales Discount

Answer 30

a discount given to customer for early payment

Question 31

Purpose of Sales Discount

Answer 31

to encourage early payment of customer account balance

Question 32

# Explain the following Terms of Sale: Cash

Answer 32

payment must be made immediately

Question 33

# Explain the following Terms of Sale: Cash on Delivery (C.O.D.)

Answer 33

Payment must be made when the goods are delivered

Question 34

# Explain the following Terms of Sale: Cash on Receipt of Invoice

Answer 34

Payment must be made when the invoice is received

Question 35

# Explain the following Terms of Sale: Net 30

Answer 35

full amount of invoice is due 30 days from the invoice date

Question 36

# Explain the following Terms of Sale: EOM

Answer 36

Payment is due at the end of the month

Question 37

# Explain the following Terms of Sale: 10th following

Answer 37

Payment is due on the 10th day of th evollowing month

Question 38

# Explain the following Terms of Sale: 2/10, n/30

Answer 38

* **2%** discount IF seller receives full payment within **10 days** of the invoice * full amount (net) due in **30 days otherwise**

Question 39

# Explain the following Terms of Sale: 1/10, n/30, EOM

Answer 39

* **1%** discount IF payment is made within **10 days** * full amount must be paid within **30 days after the end of month**

Question 40

Net Sales

Answer 40

= Sales - (Sales Returns and Allowances + Sales Discount)

Question 41

Purchases

Answer 41

account used to record the cost of all merchandise bought for resale ## Footnote expense account

Question 42

Purchases Returns and Allowances

Answer 42

account used by the buyer to record the return of goods

Question 43

What type of account is Purchases Returns and Allowances?

Answer 43

Contra Cost Account

Question 44

What type of account is Sales Returns and Allowances?

Answer 44

Contra Revenue Account

Question 45

What balance should Sales Returns and Allowances hold?

Answer 45

Debit

Question 46

What balance should Purchases Returns and Allowances hold?

Answer 46

Credit

Question 47

Purchase Discount

Answer 47

account which record the value of purchase discounts * contra cost account, ∴ credit balance ## Footnote reduces cost ==> contra asset account reduce cost = increase O.E. ==> credit balance

Question 48

Transportation-In | a.k.a. Transportation on Purchases

Answer 48

account used to record the cost of transportating the merchandise (which is bought for resale) ## Footnote * COGS account?

Question 49

Transportation _______ to the final cost of goods purchased during the accounting period.

Answer 49

adds

Question 50

Delivery Expense

Answer 50

account used to record the cost of delivering merchandise to customers ## Footnote * Expense

Question 51

# Determine the account(s) DR/CR for the following transaction:

Question 52

Accounts Specific for a Merchandising Buissness which Decrease Owner's Equity

Answer 52

* Purchases * Transportation-In * Sales Returns and Allowances * Sales Discounts * Delivery Expense ## Footnote These accounts have a ________________ balance.

Question 53

Accounts Specific for a Merchandising Buissness which Increase Owner's Equity

Answer 53

* Sales * Purchase Returns and Allowances * Purchase Discounts ## Footnote These accounts have a ________________ balance.

Question 54

Periodic Inventory Method Requirements

Answer 54

* merchandise recorded as a debit in Purchases * Merchandise Inventory account updated at the end of each fiscal period after taknie a physical inventory * COGS calculated when information is required ## Footnote ... begining to become the outdated method due to computerized systems which can easily do perpetual

Question 55

# In a perpetual inventory system ... the total value of their inventory is available in the _ _ _ _ _ _ _ _.

Answer 55

Merchandise Inventory account

Question 56

In the perpetual inventory system, inventory is still counted at least _______ a year

Answer 56

once

Question 57

Inventory Shortage

Answer 57

account used to adjust/record discreptency between Merchandise Inventory and actual value of inventory on hand ## Footnote * decreases owners equity, therefore is an expense account

Question 58

Stock Record

Answer 58

a perpetual record of the cost and quantity on hand of each item