Merchandising Operations and Inventory Systems

Question 1

Concept

Merchandising companies that purchase and sell directly to consumers

Merchandising Operations and Inventory Systems

Answer 1

retailers

Merchandising Operations and Inventory Systems

Question 2

Concept

Merchandising companies that sell to retailers

Merchandising Operations and Inventory Systems

Answer 2

wholesalers

Merchandising Operations and Inventory Systems

Question 3

Complete the sentence

The primary source of revenue for merchandising companies

Merchandising Operations and Inventory Systems

Answer 3

sales revenue

Merchandising Operations and Inventory Systems

Question 4

Enumerate

A merchandising company has two categories of expense

Merchandising Operations and Inventory Systems

Answer 4

1. Cost of goods sold
2. Operating expenses

Merchandising Operations and Inventory Systems

Question 5

Merchandising operations - expenses

Cost of goods sold

Merchandising Operations and Inventory Systems

Answer 5

1. is the total cost of merchandise sold during the period.
2. This expense is directly related to the revenue recognized from the sale of goods

Merchandising Operations and Inventory Systems

Question 6

Merchandising operations

Operating expense

Merchandising Operations and Inventory Systems

Answer 6

1. are incurred in the process of earning sales revenue.
2. Note that operating expenses are a category of expenses, not a single line item on the income statement.

Merchandising Operations and Inventory Systems

Question 7

Fill in the blank (merchandising company)

The difference between sales revenue and cost of goods sold is called ___

Merchandising Operations and Inventory Systems

Answer 7

gross profit

Merchandising Operations and Inventory Systems

Question 8

Define (merchandising company)

gross profit

Merchandising Operations and Inventory Systems

Answer 8

The difference between sales revenue and cost of goods sold

Merchandising Operations and Inventory Systems

Question 9

label the empty box

Merchandising Operations and Inventory Systems

Answer 9

Merchandising Operations and Inventory Systems

Question 10

label the empty box

Merchandising Operations and Inventory Systems

Answer 10

Merchandising Operations and Inventory Systems

Question 11

Fill in the blank

The operating cycle of a merchandising company is ordinarily ____ than that of a service company.

Merchandising Operations and Inventory Systems

Answer 11

longer / greater

Merchandising Operations and Inventory Systems

Question 12

Multiple Choice

The purchase of merchandise inventory said its eventual sale:
1. shorten the cycle
2. lengthen the cycle

Merchandising Operations and Inventory Systems

Answer 12

lengthen the cycle

Merchandising Operations and Inventory Systems

Question 13

Merchandising or servicing company

Merchandising Operations and Inventory Systems

Answer 13

Service Company

Merchandising Operations and Inventory Systems

Question 14

Merchandising or servicing company

Merchandising Operations and Inventory Systems

Answer 14

Merchandising Company

Merchandising Operations and Inventory Systems

Question 15

Flow of costs

merchandising company

Merchandising Operations and Inventory Systems

Answer 15

Merchandising Operations and Inventory Systems

Question 16

Fill in the blank

In a ___, companies keep detailed records of the cost of each inventory purchase and sale. These records continuously show the inventory should be on hand for every item.

Merchandising Operations and Inventory Systems

Answer 16

perpetual inventory system

Merchandising Operations and Inventory Systems

Question 17

Fill in the blank

In a ___, companies do not keep detailed inventory records throughout the period. Instead, they determine the cost of goods sold only at the end of the accounting period.

Merchandising Operations and Inventory Systems

Answer 17

periodic inventory system

Merchandising Operations and Inventory Systems

Question 18

Describe

perpetual inventory system

Merchandising Operations and Inventory Systems

Answer 18

• Companies keep detailed records of the cost of each inventory purchase and.
• These records continuously–perpetually–show the inventory that should be on hand for every item.

Merchandising Operations and Inventory Systems

Question 19

Complete the sentence

Under a perpetual inventory system, a company determines the cost of goods sold …

Merchandising Operations and Inventory Systems

Answer 19

each time a sale occurs

Merchandising Operations and Inventory Systems

Question 20

Enumerate steps

Cost of goods sold under a periodic inventory system

Merchandising Operations and Inventory Systems

Answer 20

1. Determine the cost of goods on hand at the beginning of the accounting period
2. Add to it the cost of goods purchased
3. Subtract the cost of goods on hand as determined by the physical inventory count at the end of the accounting period

Merchandising Operations and Inventory Systems

Question 21

Label the empty box

Merchandising Operations and Inventory Systems

Answer 21

Merchandising Operations and Inventory Systems

Question 22

Label the empty box

Merchandising Operations and Inventory Systems

Answer 22

Merchandising Operations and Inventory Systems

Question 23

Name the inventory system

Merchandising Operations and Inventory Systems

Answer 23

Periodic Inventory System

Merchandising Operations and Inventory Systems

Question 24

Name the inventory system

Merchandising Operations and Inventory Systems

Answer 24

Periodic Inventory System

Merchandising Operations and Inventory Systems

Question 25

# Indicate whether the statement is true or false The primary source of revenue for a merchandising company result from performing services for customers | Merchanidising Operations and Inventory Systems

Answer 25

False * the primary source of revenue for a service company (not a merchandising company) results from performing services for customers | Merchanidising Operations and Inventory Systems

Question 26

# Indicate whether the statement istrue or false The operating cycle of a service company isusually shorter than that of a merchandising company | Merchanidising Operations and Inventory Systems

Answer 26

True | Merchanidising Operations and Inventory Systems

Question 27

# Indicate whether the statement is true or false Sales revenue less cost of gross profit | Merchanidising Operations and Inventory Systems

Answer 27

True | Merchanidising Operations and Inventory Systems

Question 28

# Indicate whether the statement is true or false ending inventory plus the cost of goods purchased equals cost of goods available for sale | Merchanidising Operations and Inventory Systems

Answer 28

False * beginning inventory plus the cost of goods purchased equals cost of goods available for sale | Merchanidising Operations and Inventory Systems

Question 29

# Define FOB shipping point | Merchanidising Operations and Inventory Systems

Answer 29

means that the seller places the goods free on board the carrier, and the buyer pays the freight costs | Merchanidising Operations and Inventory Systems

Question 30

# Define FOB destination | Merchanidising Operations and Inventory Systems

Answer 30

means that the seller places the goods free on board to the buyer's place of business, and the seller plays the freight | Merchanidising Operations and Inventory Systems

Question 31

# Concept means that the seller places the goods free on board the carrier, and the buyer pays the freight costs | Merchanidising Operations and Inventory Systems

Answer 31

FOB shipping point | Merchanidising Operations and Inventory Systems

Question 32

# Concept means that the seller places the goods free on board to the buyer's place of business, and the seller pays the freight | Merchanidising Operations and Inventory Systems

Answer 32

FOB destination | Merchanidising Operations and Inventory Systems

Question 33

# freight costs incurred by the buyer * When the buyer incurs the transportation costs, these costs are considered part of the **cost of purchasing inventory** * Therefore, the buyer ____ the **inventory** account. | Merchandising Operations and Inventory Systems

Answer 33

**debits** (increases) | Merchandising Operations and Inventory Systems

Question 34

# Concept The purchaser may return the goods to the seller for credit if the sale was made on credit, or for a cash refund if the purchase was for cash. | Merchandising Operations and Inventory Systems

Answer 34

purchase return | Merchandising Operations and Inventory Systems

Question 35

# Concept * specifies the amount of the cash discount and time period in which it is offered. * they also indicate the time period in which the purchaser is expected to pay the full invoice price if the discount is not taken | Merchandising Operations and Inventory Systems

Answer 35

credit terms | Merchandising Operations and Inventory Systems

Question 36

# Describe 2/10, n/30 | Merchandising Operations and Inventory Systems

Answer 36

* two-ten, net thirty * the buyer may take a 2% cash discount on the invoice price, less ("net of") any returns or allowances, if payment is made within 10 days of the invoice date ( the discount period) | Merchandising Operations and Inventory Systems

Question 37

# Why? When the buyer pays an invoice within the discount period, the amount of the discount decreases **inventory**. | Merchandising Operations and Inventory Systems

Answer 37

because companies record **inventory** *at cost*, and by paying within the **discount period**, the buyer has reduced its **cost** | Merchandising Operations and Inventory Systems

Question 38

# Make the adjustment * Sauk Stereo pays the balance due of $3,500 (gross invoice price of $3,800 less purchase returns and allowances of $300) within the discount period * terms: 2/10, n/30 | Merchandising Operations and Inventory Systems

Answer 38

| Merchandising Operations and Inventory Systems

Question 39

# Make the adjustment * Sauk Stereo failed to take the discount and instead made full payment of $3,500 on June 3 | Merchandising Operations and Inventory Systems

Answer 39

| Merchandising Operations and Inventory Systems

Question 40

# Why * merchandising companies should take all available discounts * assume 2/10, n/30 | Merchandising Operations and Inventory Systems

Answer 40

* because passing up a discount is tantamount to **paying interest**. * 2/10, n/30 = [2% x (365 / 20)] = 36.5%. Obviously, it would be to borrow from the bank at **interest rates** better than 36.5%. | Merchandising Operations and Inventory Systems

Question 41

# Record the transactions On September 5, the Company buys merchandise on account from Business. The **selling price** of the goods to Business is $1,500, and the cost to Business was $800. On September 8, Company returns defective goods with a selling price of $200. | Merchandising Operations and Inventory Systems

Answer 41

| Merchandising Operations and Inventory Systems

Question 42

# make the entries under a **Perpetual System** the seller | Merchandising Operations and Inventory Systems

Answer 42

1. The seller increases *debits* **Cash** (or **Accounts Receivable** if a credit sale); increases *credits* **Sales Revenue** 2. The seller increases *debits* **Cost of Goods Sold** and decreases *credits* **Inventory** for the cost of goods sold * the **Inventory** account will show at all times the amount of inventory that should be on hand. | Merchandising Operations and Inventory Systems

Question 43

# account classification Sales Returns and Allowances | Merchandising Operations and Inventory Systems

Answer 43

contra revenue account to sales revenue | Merchandising Operations and Inventory Systems

Question 44

# Define **contra revenue account** | Merchandising Operations and Inventory Systems

Answer 44

is an account that is offset against a revenue account on the income statement | Merchandising Operations and Inventory Systems

Question 46

# contra revenue account to sales revenue excessive returns and allowances may suggest | Merchandising Operations and Inventory Systems

Answer 46

* problems with inferior merchandise * inaccuracies in filling orders * errors in billing customers * delivery or shipment mistakes | Merchandising Operations and Inventory Systems

Question 47

# contra revenue account to sales revenue a decrease (debit) recorded directly to Sales Revenue would | Merchandising Operations and Inventory Systems

Answer 47

* obscure the relative importance of sales returns and allowances as a percentage of sales | Merchanidsing Operations and Inventory Systems

Question 48

# account classification Sales Discounts | Merchandising Operations and Inventory Systems

Answer 48

* contra revenue account to sales revenue * its normal balance is a debit | Merchandising Operations and Inventory Systems

Question 49

# normal balance sales discounts | Merchandising Operations and Inventory Systems

Answer 49

debit | Merchandising Operations and Inventory Systems

Question 50

# Record the transactions on the books of Company On September 5, Company sells merchandise on account to Business. The selling price of the goods is $1,300, and the cost to Company was $800. One September 8, Business returns defective goods with an initial selling price of $200 and a fair value of $30. | Merchandising Operations and Inventory Systems

Answer 50

| Merchandising Operations and Inventory Systems

Question 51

# merchandising entries under perpetual selling merchandise to customers | Merchandising Operations and Inventory Systems

Answer 51

**Debit** Cash or Accounts Receivable * **Credit** Sales Revenue **Debit** Cost of Goods Sold * **Credit** Inventory | Merchandising Operations and Inventory Systems

Question 52

# merchandising entries under perpetual granting sales returns or allowances to customers | Merchandising Operations and Inventory Systems

Answer 52

**Debit** Sales Returns and Allowances * **Credit** Cash or Accounts Receivables **Debit** Inventory * **Credit** Cost of Goods Sold | Merchandising Operations and Inventory Systems

Question 53

# sales transactions under perpetual receiving payment from customers within discount period | Merchandising Operations and Inventory Systems

Answer 53

1. **Debit** Cash 2. **Debit** Sales Discounts 3. * **Credit** Accounts Receivable | Merchandising Operations and Inventory Systems

Question 54

# purchase transactions under perpetual purchasing merchandise for resale | Merchandising Operations and Inventory Systems

Answer 54

1. **Debit** Inventory 1. * **Credit** Cash or Accounts Receivables | Merchandising Operations and Inventory Systems

Question 55

# purchase transactions under perpetual paying freight costs on merchandise purchased; FOB shipping point | Merchandising Operations and Inventory Systems

Answer 55

1. **Debit** Inventory 2. * **Credit** Cash | Merchandising Operations and Inventory Systems

Question 56

# purchase transactions under perpetual receiving purchase returns or allowances from suppliers | Merchandising Operations and Inventory Systems

Answer 56

1. **Debit** Cash or Accounts Payable 2. * **Credit** Inventory | Merchandising Operations and Inventory Systems

Question 57

# purchase transactions under perpetual paying suppliers within discount period | Merchandising Operations and Inventory Systems

Answer 57

1. **debit** Accounts Payable 2. * **Credit** inventory 3. * **Credit** Cash | Merchandising Operations and Inventory Systems

Question 58

# prepare closing entries * The adjusted trail balance of Celine's Sports Wear Shop at December 31 shows Inventory $25,000 * Sales Revenue $162,400 * Sales Returns and Allowances $4,800 * Sales Discounts $3,600 * Cost of Goods Sold $110,000 * Rent Revenue $6,000 * Freight-Out $1,800 * Rent Expense $8,800 * Salries and Wages Expense $22,000 | Merchandising Operations and Inventory Systems

Answer 58

Sales Revenue - 162,400 Rent Revenue - 6,000 * Income Summary - 168,400 Income Summary - 151,000 * Cost of Goods Sold - 110,000 * Sales Returns and Allowances - 4,800 * Sales Discounts - 3,600 * Freight-Out - 1,800 * Rent Expense - 8,800 * Salaries and Wages Expense - 22,000 Income Summary - 17,400 * Owner's Capital - 17,400 | Merchandising Operations and Inventory Systems

Question 59

# purpose **multiple-step income statement** | Merchandising Operations and Inventory Systems

Answer 59

* a multiple-step statement distinguishes between **operating** and **nonoperating activities** * The statement highlights intermediate components of net income and shows subgroupings of expenses | Merchandising Operations and Inventory Systems

Question 60

# Steps multiple-step income statement | Merchandising Operations and Inventory Systems

Answer 60

1. income statement presentation of sales 2. gross profit 3. operating expenses and income from operations 4. nonoperating activities | Merchandising Operations and Inventory Systems

Question 61

# Concept consist of various revenues and expenses and gains and losses that are unrelated to the company's main line of operations | Merchandising Operations and Inventory Systems

Answer 61

nonoperating activities | Merchandising Operations and Inventory Systems

Question 62

# Define nonoperating activities | Merchandising Operations and Inventory Systems

Answer 62

consist of various revenues and expenses and gains and losses that are unrelated to the company's main line of operations | Merchandising Operations and Inventory Systems

Question 63

# Concept expenses incurred in the process of earning sales revenue | Merchandising Operations and Inventory Systems

Answer 63

operating expenses | Merchandising Operations and Inventory Systems

Question 64

# Define operating expenses | Merchandising Operations and Inventory Systems

Answer 64

expenses incurred in the process of earning sales revenue | Merchandising Operations and Inventory Systems

Question 65

We also can express a company's **gross profit** as a percentage called the ____ | Merchandising Operations and Inventory Systems

Answer 65

gross profit rate | Merchandising Operations and Inventory Systems

Question 66

# Explain gross profit rate is more useful that the gross profit amount | Merchandising Operations and Inventory Systems

Answer 66

The rate expresses a more meaningful (qualitative) relationship between net sales and gross profit | Merchandising Operations and Inventory Systems

Question 67

# Explain gross profit is not a true measure of profitability | Merchandising Operations and Inventory Systems

Answer 67

* it represent the merchandising profit * operating expenses are not yet deducted | Merchandising Operations and Inventory Systems