Podcast
Questions and Answers
What is the primary operation of a merchandising company?
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.
Wholesalers sell finished products in large volumes directly to consumers.
False (B)
What are the three primary steps in the operating cycle of a merchandising firm?
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.
A _______ company typically buys products from wholesalers for sale to the general public.
What system provides greater control over inventory?
What system provides greater control over inventory?
The actual balance of inventory is known at all times during the periodic inventory system.
The actual balance of inventory is known at all times during the periodic inventory system.
When Kali Company purchases 200 cameras on account, what account is credited?
When Kali Company purchases 200 cameras on account, what account is credited?
Match the type of company to its primary operation:
Match the type of company to its primary operation:
What is the total cost of the cameras purchased by Kali Company?
What is the total cost of the cameras purchased by Kali Company?
Transportation costs are not included in the cost of inventory.
Transportation costs are not included in the cost of inventory.
What is the journal entry used to record the return of 20 cameras?
What is the journal entry used to record the return of 20 cameras?
If a buyer pays within 10 days on terms of 2/10, the buyer receives a ______ discount.
If a buyer pays within 10 days on terms of 2/10, the buyer receives a ______ discount.
What is the net cash payment Kali Company made after returning cameras and applying the discount?
What is the net cash payment Kali Company made after returning cameras and applying the discount?
What is the cash payment made by Kali after returning the cameras and taking the discount?
What is the cash payment made by Kali after returning the cameras and taking the discount?
Match the following terms with their definitions:
Match the following terms with their definitions:
The payment due after returns and before discounts is $______.
The payment due after returns and before discounts is $______.
What does the term 'free on board' (FOB) destination imply?
What does the term 'free on board' (FOB) destination imply?
The periodic inventory method keeps a real-time record of inventory levels.
The periodic inventory method keeps a real-time record of inventory levels.
What is the journal entry made to correct an inventory balance that is overstated by $800?
What is the journal entry made to correct an inventory balance that is overstated by $800?
The _____ method assumes that the oldest inventory items are sold first.
The _____ method assumes that the oldest inventory items are sold first.
Match the following inventory costing methods with their descriptions:
Match the following inventory costing methods with their descriptions:
Which method assumes that the last units purchased are the first units sold?
Which method assumes that the last units purchased are the first units sold?
GAAP allows for assumed cost flows that can differ from actual goods flows.
GAAP allows for assumed cost flows that can differ from actual goods flows.
Name one reason why actual inventory might differ from accounting records.
Name one reason why actual inventory might differ from accounting records.
What is subtracted from gross sales revenue to yield net sales?
What is subtracted from gross sales revenue to yield net sales?
A periodic inventory system continuously updates the inventory account during transactions.
A periodic inventory system continuously updates the inventory account during transactions.
What is the formula to calculate gross profit percentage?
What is the formula to calculate gross profit percentage?
The ___ recognition standard is the principle stating that revenue should be recognized when goods or services are transferred to a customer.
The ___ recognition standard is the principle stating that revenue should be recognized when goods or services are transferred to a customer.
Match the following financial metrics with their definitions:
Match the following financial metrics with their definitions:
Using Kali Company’s data, what is the gross profit on sales?
Using Kali Company’s data, what is the gross profit on sales?
Sales discounts are typically assumed to not be taken by the majority of customers.
Sales discounts are typically assumed to not be taken by the majority of customers.
What effect do sales returns and allowances have on net sales?
What effect do sales returns and allowances have on net sales?
The gross profit percentage for Kali Company is ___%.
The gross profit percentage for Kali Company is ___%.
What is the primary difference between perpetual and periodic inventory systems?
What is the primary difference between perpetual and periodic inventory systems?
What is Kanzu Co.'s inventory turnover?
What is Kanzu Co.'s inventory turnover?
Inventory turnover indicates how many times a year, on average, a firm sells its inventory.
Inventory turnover indicates how many times a year, on average, a firm sells its inventory.
What is the formula for calculating Days’ Sales in Inventory?
What is the formula for calculating Days’ Sales in Inventory?
Kanzu Co. has an average inventory level of ______.
Kanzu Co. has an average inventory level of ______.
What happens to profitability as days’ sales in inventory decreases?
What happens to profitability as days’ sales in inventory decreases?
Match the inventory system type with its description:
Match the inventory system type with its description:
A perpetual inventory system does not require a physical count of ending inventory.
A perpetual inventory system does not require a physical count of ending inventory.
What is the net realizable value for the inventory in the example provided?
What is the net realizable value for the inventory in the example provided?
What is the primary purpose of the allowance for doubtful accounts?
What is the primary purpose of the allowance for doubtful accounts?
A seller receives cash from the customer immediately after a credit card sale.
A seller receives cash from the customer immediately after a credit card sale.
What is the typical fee charged by a credit card company for processing sales?
What is the typical fee charged by a credit card company for processing sales?
The formula to calculate interest on notes receivable is: Principal x Interest Rate x __________.
The formula to calculate interest on notes receivable is: Principal x Interest Rate x __________.
Match the following terms with their appropriate definitions:
Match the following terms with their appropriate definitions:
How much will Hillside Farms receive after the issuance of a $10,000 promissory note at an interest rate of 6% for 3 months?
How much will Hillside Farms receive after the issuance of a $10,000 promissory note at an interest rate of 6% for 3 months?
Sellers benefit from credit card sales by avoiding the risk of non-collection from customers.
Sellers benefit from credit card sales by avoiding the risk of non-collection from customers.
The journal entry to record Coronado Resorts' credit card sales includes a line for __________ fee expense.
The journal entry to record Coronado Resorts' credit card sales includes a line for __________ fee expense.
Flashcards
Merchandising Company vs. Service Company
Merchandising Company vs. Service Company
Merchandising companies buy and resell finished goods, while service companies provide services. Merchandisers have a step where they buy inventory.
Merchandiser Operations (Wholesaler/Retailer)
Merchandiser Operations (Wholesaler/Retailer)
Wholesalers buy from manufacturers and sell to retailers, retailers buy from wholesalers to sell to customers.
Merchandising Operating Cycle (3 Steps)
Merchandising Operating Cycle (3 Steps)
Purchase inventory, sell inventory, receive payment. Distinct from service companies.
Service Firm Operating Cycle (2 Steps)
Service Firm Operating Cycle (2 Steps)
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Perpetual Inventory System
Perpetual Inventory System
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Periodic Inventory System
Periodic Inventory System
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Inventory Accounting (Purchase)
Inventory Accounting (Purchase)
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Accounts Payable
Accounts Payable
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Purchase of Inventory
Purchase of Inventory
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Shipping Costs
Shipping Costs
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Purchase Returns
Purchase Returns
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Purchase Allowances
Purchase Allowances
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Purchase Discounts
Purchase Discounts
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2/10, n/30 terms
2/10, n/30 terms
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Inventory
Inventory
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Net Sales
Net Sales
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Gross Profit Percentage
Gross Profit Percentage
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Return on Sales Ratio
Return on Sales Ratio
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Sales Returns and Allowances
Sales Returns and Allowances
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Sales Discounts
Sales Discounts
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Revenue Recognition Standard
Revenue Recognition Standard
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End-of-Period Adjustments
End-of-Period Adjustments
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Cost of Goods Sold
Cost of Goods Sold
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Gross Profit
Gross Profit
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Free on Board (FOB) Destination
Free on Board (FOB) Destination
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Physical Inventory Count
Physical Inventory Count
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Why Physical Inventory Differs from Records?
Why Physical Inventory Differs from Records?
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Goods Flow
Goods Flow
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Cost Flow
Cost Flow
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Specific Identification Method
Specific Identification Method
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FIFO (First-In, First-Out)
FIFO (First-In, First-Out)
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Net Realizable Value
Net Realizable Value
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Inventory Write-Down
Inventory Write-Down
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Inventory Turnover
Inventory Turnover
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Days' Sales in Inventory
Days' Sales in Inventory
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Specific Identification
Specific Identification
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Bad Debt Expense
Bad Debt Expense
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Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
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Credit Card Sale?
Credit Card Sale?
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What is the benefit for the seller when a customer uses a credit card?
What is the benefit for the seller when a customer uses a credit card?
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What are the costs for the seller when a customer uses a credit card?
What are the costs for the seller when a customer uses a credit card?
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What is a promissory note?
What is a promissory note?
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How to Calculate Interest on a Note
How to Calculate Interest on a Note
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Issuing Notes Receivable
Issuing Notes Receivable
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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.
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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.