Merchandising Accounting Cycle Quiz
21 Questions
14 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What does the term 'net sales' represent in the Multi-Step Income Statement?

  • Operating income minus operating expenses
  • Gross sales plus sales returns and allowances plus sales discounts
  • Total revenue minus cost of goods sold
  • Gross sales minus sales returns and allowances minus sales discounts (correct)
  • How is gross profit calculated in the Multi-Step Income Statement?

  • Net sales minus operating expenses
  • Gross sales minus sales discounts
  • Gross sales minus total expenses
  • Net sales minus cost of goods sold (correct)
  • What type of accounts does the Closing Process consider closing?

  • Permanent and temporary accounts
  • Only temporary or nominal accounts (correct)
  • Asset accounts and liability accounts
  • Permanent accounts only
  • Which of the following describes operating expenses in the context of a merchandising business?

    <p>Expenses linked to providing the primary goods and services</p> Signup and view all the answers

    In a Multi-Step Income Statement, what is calculated after gross profit is determined?

    <p>Income from operations</p> Signup and view all the answers

    Which inventory method assigns costs based on the actual cost of specific items?

    <p>Specific identification</p> Signup and view all the answers

    What is the primary characteristic of the FIFO method?

    <p>It assumes that the first items purchased are sold first.</p> Signup and view all the answers

    In calculating the average cost using the weighted-average method, what is the formula used?

    <p>Total cost of units available for sale divided by total number of units available for sale.</p> Signup and view all the answers

    Which inventory method would result in the lowest taxes during a period of rising prices?

    <p>LIFO</p> Signup and view all the answers

    If a company has 250 units available for sale and 50 units remain unsold, how much of the total cost is assigned to the unsold goods using the weighted-average method?

    <p>$3,300</p> Signup and view all the answers

    What does LIFO stand for in inventory accounting?

    <p>Last-in, first-out</p> Signup and view all the answers

    Which inventory method is considered to have the most logical appeal for cost allocation?

    <p>Weighted-average</p> Signup and view all the answers

    How many total units were available for sale in the given example?

    <p>250</p> Signup and view all the answers

    What is a key difference between the accounting cycle for a merchandising business and a service industry?

    <p>It recognizes inventories that are purchased and sold.</p> Signup and view all the answers

    Which of the following accurately describes the Periodic Inventory System?

    <p>Cost of goods sold is determined at the end of the accounting period.</p> Signup and view all the answers

    How is the balance in the merchandise inventory account tracked under the Perpetual Inventory System?

    <p>By making entries for every transaction as they occur.</p> Signup and view all the answers

    What action occurs when customers return merchandise under the Perpetual Inventory System?

    <p>The merchandise inventory account is debited.</p> Signup and view all the answers

    What does the cost of goods sold account reflect in the Perpetual Inventory System?

    <p>The cost of goods sold at any point during the accounting period.</p> Signup and view all the answers

    Which of the following accounts would typically not be affected directly during the year under the Periodic Inventory System?

    <p>Cost of goods sold.</p> Signup and view all the answers

    What must be done at the end of the accounting period in the Periodic Inventory System?

    <p>Make physical inventory counts and apply a formula for cost of goods sold.</p> Signup and view all the answers

    What is a typical component of a multi-step income statement in merchandising?

    <p>Cost of goods sold subtracted from net sales.</p> Signup and view all the answers

    Study Notes

    Merchandising Accounting Cycle

    • The accounting cycle for merchandising businesses is similar to that of service industries.
    • Key differences include the recognition of inventory, the use of a multi-step income statement, and additional accounts needing closure at the end of the accounting period.

    Inventory Systems

    • Two inventory systems are used: periodic and perpetual.

    Periodic Inventory System

    • No entries are made to merchandise inventory or cost of goods sold accounts throughout the year.
    • The merchandise inventory balance relies on a physical count at the end of the accounting period.
    • Cost of goods sold is calculated at the end of the period using a formula.

    Perpetual Inventory System

    • Entries are made to merchandise inventory and cost of goods sold accounts as transactions occur.
    • Accounts are adjusted for purchases, sales, returns, allowances, and discounts.
    • Balances reflect the cost of goods on hand and sold at any point in time.
    • Year-end adjustments are unnecessary if the physical inventory matches the merchandise inventory account balance.

    Inventory Costing Methods

    • Four widely accepted inventory costing methods are used:

      • Specific identification
      • First-in, first-out (FIFO)
      • Weighted-average
      • Last-in, first-out (LIFO)
    • These methods can be applied to both periodic and perpetual inventory systems.

    Specific Identification

    • This method tracks each item's specific cost.
    • The actual cost of goods sold is determined by identifying the costs of the specific items sold.

    First-In, First-Out (FIFO)

    • Assumes that the first units purchased are the first units sold.
    • The cost of goods sold is determined by using the costs of the oldest inventory purchases.
    • Ending inventory reflects the cost of the most recent purchases.

    Last-In, First-Out (LIFO)

    • Assumes that the last units purchased are the first units sold.
    • The cost of goods sold is determined by using the costs of the most recent inventory purchases.
    • Ending inventory reflects the cost of the oldest purchases.

    Weighted Average Method

    • The average cost of all units available for sale is used to determine the cost of goods sold and ending inventory.
    • It is calculated by dividing the total cost of goods available for sale by the total number of units available for sale.

    Multi-Step Income Statement

    • Commonly used for merchandising businesses.
    • Calculates net income in a step-by-step manner.
    • Presents gross sales, net sales, cost of goods sold, gross profit, operating expenses, and income from operations.
    • The closing process requires consideration for closing additional revenue and expense accounts (temporary or nominal accounts).

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Description

    Test your understanding of the accounting cycle for merchandising businesses. Explore key differences from service industries, inventory systems, and how inventory impacts financial statements. This quiz covers both periodic and perpetual inventory systems in detail.

    More Like This

    Merchandising Business Accounting Quiz
    12 questions
    Accounting for Merchandising Inventory
    18 questions
    Inventory Accounting Systems Quiz
    40 questions
    Use Quizgecko on...
    Browser
    Browser