Ch. 5 - Inventories and Cost of Goods Sold

Question 1

The inventory of a manufacturer takes what three distinct forms?

Answer 1

• Raw materials
• Goods in process
• Finished goods

Question 2

What does 10 EOM mean in terms of credit terms?

Answer 2

10 EOM means that the net amount is due anytime within ten days after the end of the month in which the sale took place.

Question 3

What does n/30 mean in terms of credit terms?

Answer 3

n/30 mean that the net amount of the selling price (i.e., the amount determined after deducting any returns or allowances) is due within 30 days of the date of the invoice.

Question 4

Assume that Daisy’s makes a sale for $1,000 with credit terms of 1/10, n/30. What does this mean?

Answer 4

his means that the customer can deduct 1% from the selling price if the bill is paid within ten days of the date of the invoice.

If the customer does not pay within the first ten days, the full invoice amount is due within 30 days.

Question 5

Explain the perpetual inventory system

Answer 5

With the perpetual system, the Inventory account is updated perpetually after each sale or purchase of merchandise.

Question 6

Explain the periodic inventory system

Answer 6

With the periodic system, the Inventory account is updated only at the end of the period, when the cost of goods sold is also determined.

Question 7

How is the Gross Profit ratio calculated?

Answer 7

Gross profit / Net sales