Merchandising Company Operations Quiz
50 Questions
4 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 is the primary operation of a merchandising company?

  • Purchase finished products for resale (correct)
  • Manage inventory for other businesses
  • Provide services to customers
  • Convert raw materials into products

    • Wholesalers sell finished products in large volumes directly to consumers.

    False

    What are the three primary steps in the operating cycle of a merchandising firm?

    Purchase merchandise, sell merchandise, payment from customer

    A _______ company typically buys products from wholesalers for sale to the general public.

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

    What system provides greater control over inventory?

    <p>Perpetual System</p> Signup and view all the answers

    The actual balance of inventory is known at all times during the periodic inventory system.

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

    When Kali Company purchases 200 cameras on account, what account is credited?

    <p>Accounts payable</p> Signup and view all the answers

    Match the type of company to its primary operation:

    <p>Manufacturer = Converts raw materials into products Merchandiser = Buys finished products for resale Service Company = Performs services for customers Wholesaler = Sells products in bulk to retailers</p> Signup and view all the answers

    What is the total cost of the cameras purchased by Kali Company?

    <p>$42,000</p> Signup and view all the answers

    Transportation costs are not included in the cost of inventory.

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

    What is the journal entry used to record the return of 20 cameras?

    <p>Accounts Payable (-L) 4,200; Inventory (-A) 4,200</p> Signup and view all the answers

    If a buyer pays within 10 days on terms of 2/10, the buyer receives a ______ discount.

    <p>2%</p> Signup and view all the answers

    What is the net cash payment Kali Company made after returning cameras and applying the discount?

    <p>$37,044</p> Signup and view all the answers

    What is the cash payment made by Kali after returning the cameras and taking the discount?

    <p>$37,044</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Purchase Returns = Reduction in the purchase price Purchase Allowances = Return of merchandise by the buyer Purchase Discounts = Incentive for faster payment Transportation Costs = Costs incurred to get merchandise ready for resale</p> Signup and view all the answers

    The payment due after returns and before discounts is $______.

    <p>37,800</p> Signup and view all the answers

    What does the term 'free on board' (FOB) destination imply?

    <p>Seller pays shipping costs until delivered.</p> Signup and view all the answers

    The periodic inventory method keeps a real-time record of inventory levels.

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

    What is the journal entry made to correct an inventory balance that is overstated by $800?

    <p>Debit Cost of Goods Sold $800, Credit Inventory $800.</p> Signup and view all the answers

    The _____ method assumes that the oldest inventory items are sold first.

    <p>First-In, First-Out (FIFO)</p> Signup and view all the answers

    Match the following inventory costing methods with their descriptions:

    <p>Specific Identification = Used for unique, high-cost items. FIFO = Oldest costs are matched with oldest inventory. LIFO = Recent costs are matched with newest inventory. Weighted-Average = All costs averaged for goods sold and ending inventory.</p> Signup and view all the answers

    Which method assumes that the last units purchased are the first units sold?

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

    GAAP allows for assumed cost flows that can differ from actual goods flows.

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

    Name one reason why actual inventory might differ from accounting records.

    <p>Theft, spoilage, errors, or use of the periodic inventory method.</p> Signup and view all the answers

    What is subtracted from gross sales revenue to yield net sales?

    <p>Sales returns and allowances</p> Signup and view all the answers

    A periodic inventory system continuously updates the inventory account during transactions.

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

    What is the formula to calculate gross profit percentage?

    <p>Gross Profit / Net Sales</p> Signup and view all the answers

    The ___ recognition standard is the principle stating that revenue should be recognized when goods or services are transferred to a customer.

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

    Match the following financial metrics with their definitions:

    <p>Gross Profit Percentage = Indicates a company's ability to sell products at acceptable prices Return on Sales Ratio = Reveals the net income earned on each dollar of sales Sales Returns = Contra-revenue account reducing total sales Net Income = Profit after all costs have been subtracted from revenue</p> Signup and view all the answers

    Using Kali Company’s data, what is the gross profit on sales?

    <p>$7,355</p> Signup and view all the answers

    Sales discounts are typically assumed to not be taken by the majority of customers.

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

    What effect do sales returns and allowances have on net sales?

    <p>They decrease net sales.</p> Signup and view all the answers

    The gross profit percentage for Kali Company is ___%.

    <p>58.8</p> Signup and view all the answers

    What is the primary difference between perpetual and periodic inventory systems?

    <p>Perpetual updates inventory continuously; periodic updates at the end of the period</p> Signup and view all the answers

    What is Kanzu Co.'s inventory turnover?

    <p>25 times</p> Signup and view all the answers

    Inventory turnover indicates how many times a year, on average, a firm sells its inventory.

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

    What is the formula for calculating Days’ Sales in Inventory?

    <p>365 / Inventory Turnover</p> Signup and view all the answers

    Kanzu Co. has an average inventory level of ______.

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

    What happens to profitability as days’ sales in inventory decreases?

    <p>Profitability increases</p> Signup and view all the answers

    Match the inventory system type with its description:

    <p>Periodic = Inventory computed at the end of the period Perpetual = Inventory updated after every transaction</p> Signup and view all the answers

    A perpetual inventory system does not require a physical count of ending inventory.

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

    What is the net realizable value for the inventory in the example provided?

    <p>$264</p> Signup and view all the answers

    What is the primary purpose of the allowance for doubtful accounts?

    <p>To estimate uncollectible accounts receivable</p> Signup and view all the answers

    A seller receives cash from the customer immediately after a credit card sale.

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

    What is the typical fee charged by a credit card company for processing sales?

    <p>1-5%</p> Signup and view all the answers

    The formula to calculate interest on notes receivable is: Principal x Interest Rate x __________.

    <p>Interest time</p> Signup and view all the answers

    Match the following terms with their appropriate definitions:

    <p>Bad debt expense = An expense reflecting uncollectible accounts Promissory note = A written promise to pay a sum of money Credit card fee = A charge for processing credit card transactions Allowance for doubtful accounts = Estimates the amount of receivables that will not be collected</p> Signup and view all the answers

    How much will Hillside Farms receive after the issuance of a $10,000 promissory note at an interest rate of 6% for 3 months?

    <p>$10,150</p> Signup and view all the answers

    Sellers benefit from credit card sales by avoiding the risk of non-collection from customers.

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

    The journal entry to record Coronado Resorts' credit card sales includes a line for __________ fee expense.

    <p>credit card</p> Signup and view all the answers

    Study Notes

    Chapters 5-8 Financial Accounting (Binghamton University)

    • This document is a student study guide for Financial Accounting, covering chapters 5-8.
    • The material is from Binghamton University.
    • The document contains a QR code that leads to Studocu.
    • Studocu is not sponsored nor endorsed by any college or university.
    • The document was downloaded by Bala Abubakr ([email protected]).

    Merchandising Operations

    • Manufacturers transform raw materials and components into finished products.
    • Merchandisers purchase finished products to resell.
    • Wholesalers buy from manufacturers in bulk and sell to retailers.
    • Retailers acquire products from wholesalers and sell them to the public.

    Operating Cycle of a Merchandising Firm

    • Purchase merchandise (inventory).
    • Sell merchandise (accounts receivable).
    • Receive payment from customers (cash).

    Operating Cycle of a Service Firm

    • Perform services (accounts receivable).
    • Receive payment from customers (cash).

    Cost Flows

    • Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sale
    • Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold

    Inventory Systems

    • Perpetual System: Tracks inventory changes in real-time.
    • Periodic System: Calculates cost of goods sold periodically.

    Accounting for Purchases of Merchandise

    • Debit inventory for the cost of merchandise purchased.
    • Credit cash if payment is made in cash.
    • Credit accounts payable if payment is made on credit.
    • Transportation costs (getting merchandise ready for sale) are included in the inventory cost.

    Purchase Returns and Allowances

    • Purchase returns: Returning merchandise for a credit.
    • Purchase allowances: Reducing the purchase price to keep merchandise.

    Purchase Discounts

    • Credit period: Time given for payment.
    • Purchase discount: Incentive for early payment.

    Accounting for Sales of Merchandise

    • Perpetual System: Updates inventory and cost of goods sold after each sale.
    • Record revenue and cost of goods sold (COGS) for sales.
    • Credit sales revenue and debit cash (or accounts receivable).
    • Debit COGS, credit inventory.

    Sales Returns and Allowances

    • Sales returns: Customers returning merchandise.
    • Sales allowances: Reducing the price for merchandise kept.

    Sales Discounts

    • Incentive for early payment.
    • Calculated on net sales.

    Gross Profit Percentage

    • Measures profitability.
    • Gross Profit/Net Sales = Gross Profit Percentage.

    Return on Sales Ratio

    • Net Income/Net Sales = Return on Sales Ratio
    • Measures profitability on each dollar of sales.

    Periodic Inventory System

    • Inventory and cost of goods sold are updated periodically at the end of the accounting period.

    Inventory Costing Methods

    • Specific Identification
    • First-In, First-Out (FIFO)
    • Last-In, First-Out (LIFO)
    • Weighted-Average Cost

    Inventory Errors

    • Errors can arise from miscounting inventory, affecting cost of goods sold and ending inventory
    • Inventory errors affect reported income in the current and following periods

    Lower-of-Cost-or-Net Realizable Value (LCNRV) Method

    • Use the lower value between cost and net realizable value to value inventory for financial reporting.

    Accounts Receivable

    • Created when a company extends credit to customers for goods or services.

    Losses from Uncollectible Accounts

    • Estimated credit losses are recognized when revenue is earned.
    • Allowance Method: A method for estimating and recording anticipated losses.
    • Write offs of bad debts occur when a customer defaults
    • Recovery of accounts written off: When a previously written off account is subsequently collected.

    Recovery of accounts written off

    • Reverse the original write off
    • Record the cash collected

    Accounts Receivable Aging Method

    • Estimates bad debt expense using an aging schedule.

    Credit Card Sales

    • Companies utilize credit cards to facilitate sales and reduce risk to the seller
    • Credit card companies deduct a fee from sales revenue

    Notes Receivable

    • Written promise to pay a specific amount at a future date, plus interest

    Recording Notes

    • Record notes receivable, and interest on notes receivable.

    Effective Cash Management

    • Manage accounts receivable faster
    • Decrease inventory levels
    • Manage payables effectively

    Auditing

    • Auditing examines the financial statements to provide an independent opinion to stakeholders.
    • Financial statement audits: Ensure the accuracy of reported information.
    • Operational audits: Assess the effectiveness of operational processes.

    Studying That Suits You

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

    Quiz Team

    Related Documents

    Financial Accounting (Binghamton University) Chapters 5-8 PDF

    Description

    Test your knowledge on the primary operations of merchandising companies, including inventory management and financial transactions. This quiz covers key concepts such as the operating cycle, inventory valuation, and journal entries. Assess your understanding of the financial aspects related to purchasing and selling goods in a merchandising context.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser