7.1 Merchandising Business

Question 1

Merchandising Business

Answer 1

Many businesses buy goods in order to sell them to customers for a profit. The merchandise that these businesses buy is called merchandise inventory.

Question 2

Merchandise Inventory
(not sold)

Answer 2

this is reported (at cost price) in the current assets section of the balance sheet under a new account called Merchandise Inventory

Question 3

Merchandise Inventory
(sold)

Answer 3

his is reported in the income statement under the title “Cost of Goods Sold”.

Question 4

Where is merchandise inventory listen

Answer 4

Merchandise inventory is listed on the balance sheet in the current assets section. It is listed at cost price.

Question 5

Where are COGS listed

Answer 5

COGS is listed on the income statement as its own section.

Question 6

The Periodic inventory system

Answer 6

doesn’t keep track of the COGS for each sale.

Instead the cost of inventory sold is calculated at the end of each fiscal period.

Question 7

Note that the beginning inventory amount

Answer 7

is last year’s ending inventory amount

Question 8

The inventory of a periodic business is kept in two accounts

Answer 8

Merchandise Inventory
Purchases

Question 9

Merchandise Inventory (account)

Answer 9

This figure represents the beginning inventory for a fiscal period.

At the end of the fiscal period the Merchandise Inventory is updated via an adjusting entry.

This updated amount is the beginning inventory for the next fiscal period.

Question 10

Purchases (account)

Answer 10

This account is used when merchandise for resale is purchased.

It is located in the expense section of the ledger. Purchases is a debit account.

Question 11

Shipping Costs

Answer 11

Transportations costs are considered part of the cost of buying merchandise. They are an expense account.

Freight-In → the account that we use to track them.