Chapter 5: Merchandising Operations

Question 1

Merchandising Company

Answer 1

Buys and Sells Goods

Question 2

What is the primary source of revenues referred to as

Answer 2

Sales revenue or Sales

Question 3

COGS

Cost of Goods Sold

Answer 3

Is the total cost of merchandise sold during the period

Question 4

Which Operating Cycle is longer

• Service Company or
• Merchandising Company

Answer 4

Merchandising Companys

Question 5

Flow of Cost:

Perpetual System

Answer 5

• Maintain detailed record of the cost of each inventory purchase and sale
• Records CONTINUOUSLY show inventory that should be on hand
• Determines cost of goods sold EACH TIME a sale occurs

Question 6

Flow of Cost:

Periodic System

Answer 6

• Do NOT keep detailed records of the goods on hand
• Cost of Goods Sold determined by count at the end of the accounting period

Question 7

Formula for Cost of Goods Sold

Answer 7

Beginning Inventory

+ Purchases, Net Goods available for sale

• Ending inventory

= COGS

Question 8

FOB Shipping Point

Answer 8

• Seller places goods Free On Board the carrier, and buyer pays freight costs
• Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

Question 9

FOB Destination

Answer 9

• Seller paces good Free on Board to the buyer’s place of business, and seller pays freight cost
• Ownership pf the goods remains with the seller until the goods reach the buyer

Question 10

Freight Cost

Answer 10

Freight Cost incurred by the seller are an Operating Expense (Delivery Expense)

• Delivery expense XXX to Cash XXXXX

Freight Cost incurred by the buyer increases inventory

• Perpetual Inventroy System: Inventory XXXX to Cash XXXXX
• Periodic Inventory system: Freight-In XXX to Cash XXX

Question 11

Purchase Returns

Answer 11

Buyer may return the goods for credit if the sale was made on credit, or for cash if the purchase was for cash

Question 12

Purchase Allowance

Answer 12

Buyer may choose to keep the merchandise in the case of damages - if the seller will grant an allowance (deduction) from the purchase price

Question 13

Purchase Discounts

and Advantes for Buyer and Seller

Answer 13

Credit terms may permit buyer to claim a cash discount for prompt payment

Advantages:

• Purchaser saves money
• Seller shortens the operating cycle

Question 14

Purchase Discounts:

2/10, n/30

Answer 14

2% discounts if paid within 10 days, otherwise net amount due within 30 days

Question 15

Purchase Discounts:

1/10 EOM

Answer 15

1% discount if paid within first 10 days of next month

Question 16

Purchase Discounts:

n/10 EOM

Answer 16

Net amount due within the first 10 days of the next month

Question 17

Account for “Sale Retuns and Allowances”

Answer 17

• “Flipside” of purchase retuns and allowances
• Contra-Revenue account (DEBIT)
• Sales Account is not reduced (debited)

Periodic Inventory System:

Sale Return and Allowance XXX

Account Receivables XXX

-> No CHANGE in Inventory and COGS !!!

Perpetual Inventory System:

(siehe Foto)

Question 18

Account for “Sales Discounts”

Answer 18

• Flipside of purchase discount
• Contra-Revenue account (DEBITED

Question 19

Formular for Net Sales

Answer 19

Sales Revenue

• Sale Returns and allowances
• Sale Discounts

= Net Sales

Question 20

Formular Gross Profit

Answer 20

Sales Revenue

• COGS

= Gross Profit

Question 21

Gross Profit rate

Answer 21

Gross Profit / Net Sales

Question 22

Other Income and expenses

Answer 22

Consists of various revenues and gains and expenses and losses that are UNRELATED to the company’s main line of operations

Question 23

Comprehensive Income

Answer 23

• Reported in a combined statement of net income and comprehensive income or in a seperate schedule that reports only comprehensive income
• Includes certain adjustments to pension plan assets,
• gains/losses on foreign currency translations,
• and unrealized gains/losses on certain types of investments

Question 24

Name the two categories of expenses of a Merchandising Company

Answer 24

• COGS
• Operating Expense

Question 25

Cost of Goods Available for sale

Answer 25

**Beginning Inventory** **+ Cost of Goods Purchased** **= Cost of Goods available for sale**

Question 26

Record the Sale of Merchandise under a perpetual System

Answer 26

Account Receivables XXXX Sales Revenue XXXX und Cost of Goods Sold ZZZ Inventory ZZZZ

Question 27

Determining COGS under a **Periodic System**

Answer 27

* Is determined at the end of ther Period. NOT each time a sale is made Beginning Inventory + Purchases - Pruchase returns and Allowance - Purchase Discounts + Freight In - Ending Inventory

Question 28

Cost of Goods Purchased

Answer 28

Purchases - Purchase Retuns and Allowances - Purchase Discounts = Net Purchases + Freight-In = Cost of Goods Purchased

Question 29

Recording in a Periodic Inventory System

Answer 29

* _Purchases:_ * **"Purchase" Account** * not Inventory Account * _Freight Cost:_ * **"Freight-In" Account** * not added to Inventory !!!!!!! * _Purchase Retuns and Allowance:_ * **"Purchase Retrurn and Allowance"** Account or "Purchase Discount" Account * not substract from Inventory!!! * _Sales_: * NO COGS !!!! * _Sales Return and Allowance_ * NO increase of Inventory like under a perpetural Inventory System

Question 30

Freight-In Account

Answer 30

* Part of **COGPurchased** * **ADDED not Substracted** * Only in Periodic Inventory System * Im Perpetual Inventory System werden die Freight-In Kosten direkt dem Inventory zugerechnet * Is a temporary account * Debit Balance (increases on the debit side) * Part of Cost of goods purchased * FREIGHT COST ARE **NOT** SUBJECT TO A PURCHASE DISCOUNT. Purchase discounts apply only to the invoice cost of the merchandise !!!

Question 31

"Purchase Retuns and Allowance" Account

Answer 31

* Only in a Periodic Inventory System * Temporary Account * Normal Balance is Credit (increases on the credit side)

Question 32

"Puchase Discounts" Account

Answer 32

* ONLY in a Periodic Inventory System * Temporary Account * Normal Balance is credit

Question 33

Purchase Account

Answer 33

* Temporary Account * Normal Balance is a Debit Purchase XXX Account Payable XXX

Question 34

Operating Expense ## Footnote FREIGHT OUT: ???? Depreciation Expense: ??? COGS: ??? Salarie and Wage expenses

Answer 34

* FREIGHT OUT: JA Depreciation Expense: JA COGS: NEIN Salarie and Wage expenses: JA