Podcast
Questions and Answers
What is gross profit?
What is gross profit?
Equal to net sales less cost of goods sold.
If a company reports net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000, what is its gross profit?
If a company reports net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000, what is its gross profit?
$400,000
Match the components of a merchandiser's operating cycle:
Match the components of a merchandiser's operating cycle:
Cash purchase of merchandise = Item a Inventory of sale = Item b Credit sales = Item c Accounts receivable = Item d Receipt of cash from credit sales = Item e
A perpetual inventory system updates the accounting records ____.
A perpetual inventory system updates the accounting records ____.
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A periodic inventory system updates the accounting records ____.
A periodic inventory system updates the accounting records ____.
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Which of the following statements is correct regarding the adjusting entries for a merchandiser versus a service company?
Which of the following statements is correct regarding the adjusting entries for a merchandiser versus a service company?
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Which of the following statements is correct regarding inventory shrinkage?
Which of the following statements is correct regarding inventory shrinkage?
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What is the correct statement regarding the closing process of a merchandiser?
What is the correct statement regarding the closing process of a merchandiser?
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Which of the following totals and subtotals are not found on a multiple-step income statement?
Which of the following totals and subtotals are not found on a multiple-step income statement?
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What does a single-step income statement report?
What does a single-step income statement report?
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When a classified balance sheet is prepared, how is merchandise inventory reported?
When a classified balance sheet is prepared, how is merchandise inventory reported?
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Which of the following accounts would not be used to compute the acid-test ratio?
Which of the following accounts would not be used to compute the acid-test ratio?
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Study Notes
Gross Profit
- Gross profit is calculated as net sales minus cost of goods sold (COGS).
- Example: With net sales of $600,000 and COGS of $200,000, gross profit equals $400,000.
Merchandiser's Operating Cycle
- The cycle consists of:
- Cash purchase of merchandise
- Inventory for sale
- Credit sales
- Accounts receivable
- Receipt of cash from credit sales
Inventory Systems
- Perpetual inventory systems update records with every purchase and sale.
- Periodic inventory systems update records only at the end of the period.
Adjusting Entries
- An adjusting entry for accrued expenses is necessary for both service and merchandising companies.
- Merchandising companies also require adjustments for unearned revenues.
Inventory Shrinkage
- Inventory shrinkage denotes a loss of inventory, often due to theft or deterioration.
- It is determined by comparing the physical count of inventory to recorded amounts.
- Record shrinkage by debiting Cost of Goods Sold.
Closing Process for Merchandisers
- During the closing process, both Sales Discounts and Sales Returns and Allowances accounts are credited.
Income Statements
- Total current assets are not reported on a multiple-step income statement.
- A single-step income statement yields the same net income as a multiple-step income statement.
Classified Balance Sheet
- Merchandise inventory is categorized as a current asset on a classified balance sheet.
Acid-Test Ratio
- Plant assets are not included in the calculation of the acid-test ratio.
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Description
This quiz covers essential accounting concepts such as gross profit calculation, the merchandiser's operating cycle, and inventory systems. It also touches on adjusting entries and inventory shrinkage, crucial for maintaining accurate financial records. Test your understanding of these key topics in accounting for merchandising companies.
