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Questions and Answers
Which of the following statements about merchandise is correct?
Which of the following statements about merchandise is correct?
- Merchandise is written off as an expense immediately.
- Merchandise has no value until sold.
- Merchandise is only for internal use.
- Merchandise is acquired for resale to customers. (correct)
Cost of goods sold is characterized by which of the following statements? (Check all that apply.)
Cost of goods sold is characterized by which of the following statements? (Check all that apply.)
- Cost of goods sold includes the expenses of buying and preparing an item for sale. (correct)
- Cost of goods sold is used to figure gross profit. (correct)
- Cost of goods sold is an expense reported on the income statement. (correct)
- Cost of goods sold is also called cost of sales. (correct)
What describes gross profit?
What describes gross profit?
The difference between net sales and the cost of the goods sold.
How do you compute net income for a merchandiser?
How do you compute net income for a merchandiser?
Which of the following describe merchandise inventory? (Check all that apply.)
Which of the following describe merchandise inventory? (Check all that apply.)
Merchandise consists of _______, that a company acquires to resell to ________.
Merchandise consists of _______, that a company acquires to resell to ________.
Merchandise inventory that is still available for sale is considered a(n) (asset/expense/revenue) and is reported on the (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) (asset/expense/liability) and reported on the (balance sheet/income statement).
Merchandise inventory that is still available for sale is considered a(n) (asset/expense/revenue) and is reported on the (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) (asset/expense/liability) and reported on the (balance sheet/income statement).
What is the expense of buying and preparing merchandise called?
What is the expense of buying and preparing merchandise called?
Gross profit is calculated by taking the net (sales/costs) of a product and (adding/subtracting) the cost of the goods sold.
Gross profit is calculated by taking the net (sales/costs) of a product and (adding/subtracting) the cost of the goods sold.
What best describes a perpetual inventory system?
What best describes a perpetual inventory system?
To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract ______.
To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract ______.
To record a transaction where Toys R Fun purchased $4,000 of merchandise, would debit the Merchandise (Inventory/Payable/Cash) account and credit the (Cash/Inventory/Accounts Payable) account.
To record a transaction where Toys R Fun purchased $4,000 of merchandise, would debit the Merchandise (Inventory/Payable/Cash) account and credit the (Cash/Inventory/Accounts Payable) account.
How is merchandise inventory described?
How is merchandise inventory described?
Which statements accurately describe merchandise available for sale during a period? (Check all that apply.)
Which statements accurately describe merchandise available for sale during a period? (Check all that apply.)
What do the credit terms of n/15 mean?
What do the credit terms of n/15 mean?
What do the credit terms of 2/10,n/30 mean? (Check all that apply.)
What do the credit terms of 2/10,n/30 mean? (Check all that apply.)
Which of the following statements explain why perpetual inventory systems are becoming more popular? (Check all that apply.)
Which of the following statements explain why perpetual inventory systems are becoming more popular? (Check all that apply.)
A cash discount can be summarized as a discount given to (buyers/creditors/sellers) to encourage them to pay (earlier/later/less/more).
A cash discount can be summarized as a discount given to (buyers/creditors/sellers) to encourage them to pay (earlier/later/less/more).
What is the journal entry for recording the purchase of $300 of merchandise with a perpetual inventory system?
What is the journal entry for recording the purchase of $300 of merchandise with a perpetual inventory system?
The discount period is the time (before/between) the invoice date and a specified date on which the payment amount owed can be (increased/reduced) because of early payment.
The discount period is the time (before/between) the invoice date and a specified date on which the payment amount owed can be (increased/reduced) because of early payment.
Which of the following costs are included in merchandise inventory? (Check all that apply.)
Which of the following costs are included in merchandise inventory? (Check all that apply.)
Calculate the purchase discount for X-Mart if they purchase $400 of merchandise with terms of 2/10,n/30 and payment is made on June 11.
Calculate the purchase discount for X-Mart if they purchase $400 of merchandise with terms of 2/10,n/30 and payment is made on June 11.
Demonstrate the required journal entry for LOL Music Store's payment of merchandise with terms of 2/5,n/60. (Check all that apply.)
Demonstrate the required journal entry for LOL Music Store's payment of merchandise with terms of 2/5,n/60. (Check all that apply.)
Which of the statements below summarize what cash discounts are? (Check all that apply.)
Which of the statements below summarize what cash discounts are? (Check all that apply.)
What is a discount period?
What is a discount period?
Demonstrate the journal entry for Toys R Fun to record the payment of $1,000 of merchandise with terms of 2/10,n/30 if payment is made on December 30. (Check all that apply.)
Demonstrate the journal entry for Toys R Fun to record the payment of $1,000 of merchandise with terms of 2/10,n/30 if payment is made on December 30. (Check all that apply.)
An invoice is referred to as a ______ invoice for a buyer and as a _______ invoice for the seller.
An invoice is referred to as a ______ invoice for a buyer and as a _______ invoice for the seller.
Calculate the purchase discount for X-Mart if they purchase $500 of merchandise with terms of 3/15,n/40 and payment is made on May 28.
Calculate the purchase discount for X-Mart if they purchase $500 of merchandise with terms of 3/15,n/40 and payment is made on May 28.
A purchase return refers to merchandise a (buyer/seller/creditor) purchased, but then returns to the (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.
A purchase return refers to merchandise a (buyer/seller/creditor) purchased, but then returns to the (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.
What is a purchase return?
What is a purchase return?
What is the required journal entry for a $100 allowance received by X-Mart?
What is the required journal entry for a $100 allowance received by X-Mart?
Study Notes
Merchandise
- Merchandise is products acquired for resale to customers.
- Merchandise inventory is an asset account that appears on the balance sheet.
Cost of Goods Sold (COGS)
- COGS is used to calculate gross profit and includes expenses related to purchasing and preparing items for sale.
- Also known as cost of sales, it is classified as an expense on the income statement.
Gross Profit and Net Income
- Gross profit is calculated by subtracting COGS from net sales.
- Net income for a merchandiser is computed as: Net sales - COGS - other expenses.
Inventory Systems
- A perpetual inventory system continuously updates accounting records for merchandise transactions and is increasingly popular due to technological advances providing real-time sales and inventory data.
Credit Terms
- "n/15" means payment is due in 15 days; "2/10, n/30" allows a 2% discount if paid within 10 days, with the full payment due in 30 days.
- A cash discount incentivizes buyers to pay early.
Journal Entries
- For a $300 merchandise purchase, the journal entry under a perpetual inventory system would be: Debit Merchandise Inventory $300; Credit Cash $300.
- To record payment after a discount, debit Accounts Payable, credit Cash for the payment amount, and credit Merchandise Inventory for the discount taken.
Inventory Available for Sale
- The total merchandise available for sale is calculated as: Beginning inventory + Net purchases.
- Ending inventory + COGS = Merchandise available for sale.
Purchase Returns and Allowances
- A purchase return refers to merchandise returned to the seller for a refund or reduction in liability.
- A purchase allowance is a reduction in the cost for defective or unacceptable merchandise.
Cash Management Practices
- Effective management involves monitoring inventory levels, evaluating supplier terms, and planning for discounts to optimize cash flow.
Key Calculations
- Discounts can be calculated based on terms; for example, a purchase of $400 with terms of 2/10 can yield an $8 discount if paid within the discount period.
- A purchase discount for $500 with terms of 3/15 results in a possible $15 discount if paid within the specified period.
Additional Notes
- Shipping fees, taxes, and preparation costs are included in merchandise inventory.
- Merchandise that has not been sold during the period is deemed an asset, while sold merchandise is classified as an expense reported on the income statement.
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Test your knowledge of key concepts from BUSN 201 Chapter 4 with these flashcards! Focus on understanding merchandise and cost of goods sold, including their definitions and characteristics. Perfect for quick review before exams or studying sessions.
