Merchandising Business Concepts
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Questions and Answers

Which statement correctly defines a merchandiser?

  • An individual who manufactures goods for sale.
  • An organization that provides services rather than physical products.
  • A business that exclusively sells digital products.
  • An entity that purchases and sells goods, either as a wholesaler or retailer. (correct)

What distinguishes a perpetual inventory system from a periodic inventory system?

  • Periodic systems track inventory with real-time data technology.
  • Periodic systems require constant updates to stock quantities.
  • Perpetual systems are less accurate than periodic systems.
  • Perpetual systems maintain continuous records of inventory movements. (correct)

Which factor is involved in determining gross profit?

  • Trade discounts subtracted from gross sales.
  • Sales revenue minus the cost of sales. (correct)
  • Net income before taxes and expenses.
  • Operating expenses added to cost of goods sold.

In the FIFO costing method, how are goods accounted for?

<p>Items are sold starting with the oldest purchases. (C)</p> Signup and view all the answers

What are cash discounts typically dependent on?

<p>The terms of payment and industry customs. (A)</p> Signup and view all the answers

What is an essential requirement for the periodic inventory system?

<p>A physical count of inventory at regular intervals. (C)</p> Signup and view all the answers

Which category of expense represents costs incurred directly from selling inventory?

<p>Cost of Goods Sold (B)</p> Signup and view all the answers

How are sales returns and allowances generally accounted for?

<p>As a deduction from sales revenue. (B)</p> Signup and view all the answers

Which of the following best defines non-operating activities?

<p>Minor income and expenses not part of regular operations. (A)</p> Signup and view all the answers

What is the role of freight-out in a sales transaction?

<p>The seller retains ownership until delivery is complete. (C)</p> Signup and view all the answers

What does a purchase return signify in accounting?

<p>Goods bought may be defective or damaged. (B)</p> Signup and view all the answers

What is the primary purpose of special journals in accounting?

<p>To identify major transactions in specific areas. (C)</p> Signup and view all the answers

In calculating the net cost of purchases, what is added to gross purchases?

<p>Freight-in expenses to arrive at total cost. (C)</p> Signup and view all the answers

What type of expense is classified as administrative (general) expense?

<p>Overhead expenses for corporate operations. (C)</p> Signup and view all the answers

How is output tax characterized in the context of sales transactions?

<p>A 12% VAT charged on the sale of goods and services. (D)</p> Signup and view all the answers

What is the primary purpose of a cash receipts journal?

<p>To document all cash transactions related to cash inflow. (C)</p> Signup and view all the answers

Flashcards

Merchandising Business

Involves buying and selling goods or merchandise to customers; can be done by wholesalers or retailers.

Wholesaler

A business that buys in bulk from manufacturers and sells to retailers.

Retailer

A business that sells merchandise directly to customers.

Merchandise Inventory

The stock of goods a merchandiser buys and sells.

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Sales Revenue

The revenue earned from selling goods to customers.

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Cost of Sales

The cost of the merchandise that is sold. It's deducted from sales revenue to arrive at gross profit.

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Gross Profit

Represents the markup on the cost price. It's calculated by subtracting the cost of sales from sales revenue.

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Operating Profit

Calculated after deducting operating expenses from gross profit. It represents the profit generated from the core operations of the business.

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Non-Operating Activities

Minor income and expense items not related to regular business operations; examples include interest income or losses on investments.

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Gross Purchases

The total value of all purchases made by the business; it does not include any discounts or returns.

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Freight In

The cost of transporting goods to the business. It's added to gross purchases to determine the total cost of delivered goods.

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Freight Out

The cost of transporting goods to customers. It's considered an operating expense.

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Purchase Returns and Allowances

Goods returned to the seller due to defects, damage, or incorrect orders. It reduces the cost of purchases.

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Purchase Discounts

Reductions in price offered by the seller for early payment. It reduces the cost of purchases.

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Net Cost of Purchases

Calculated by adding freight-in to gross purchases and subtracting purchase returns, allowances, and discounts. It represents the final cost of purchased goods.

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Sales Returns and Allowances

Occurs when a customer returns merchandise for a refund or credit due to defects, damage, or other reasons. It's reduced from sales revenue to arrive at net sales.

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Net Sales

Calculated by subtracting returns, allowances, and discounts from gross sales. It represents the final amount of revenue generated from sales.

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Study Notes

Merchandising Business

  • Involves buying and selling goods or merchandise
  • Can be done by wholesalers or retailers
  • Wholesaler buys in bulk from manufacturers and sells to retailers
  • Retailer sells directly to customers

Merchandise Inventory

  • Refers to the stock of goods a merchandiser buys and sells
  • Continuously tracked using the perpetual method
  • Counted periodically using the periodic method

Sales Revenue

  • The revenue earned from selling goods to customers
  • Normal balance is credit
  • Calculated as the total amount of goods sold

Cost of Sales

  • The cost of the merchandise that is sold
  • Deducted from sales revenue to arrive at gross profit
  • Two categories of expense: cost of goods sold (capital) and operating expenses (general)

Gross Profit

  • Represents the markup on the cost price
  • Calculated by subtracting the cost of sales from sales revenue

Operating Profit

  • Calculated after deducting operating expenses from gross profit
  • Represents the profit generated from the core operations of the business

Non-Operating Activities

  • Minor income and expense items not related to regular business operations
  • Examples include interest income or losses on investments

Gross Purchases

  • Total value of all purchases made by the business
  • Does not include any discounts or returns

Freight In

  • Cost of transportation incurred to bring goods to the business
  • Added to gross purchases to determine the total cost of delivered goods

Freight Out

  • Cost of transportation incurred to deliver goods to customers
  • Considered an operating expense

Purchase Returns and Allowances

  • Goods returned to the seller due to defects, damage, or incorrect orders
  • Reduce the cost of purchases

Purchase Discounts

  • Reductions in price offered by the seller for early payment
  • Reduce the cost of purchases

Net Cost of Purchases

  • Calculated by adding freight-in to gross purchases and subtracting purchase returns, allowances, and discounts
  • Represents the final cost of purchased goods

Sales Returns and Allowances

  • Occurs when a customer returns merchandise for a refund or credit due to defects, damage, or other reasons
  • Reduced from sales revenue to arrive at net sales

Net Sales

  • Calculated by subtracting returns, allowances, and discounts from gross sales
  • Represents the final amount of revenue generated from sales

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Description

Test your understanding of key concepts in merchandising business, including the roles of wholesalers and retailers, merchandise inventory management, and the calculations of sales revenue and gross profit. This quiz covers important financial metrics and inventory methods crucial for merchandising operations.

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