LS 6: Merchandising Operations and the Multistep Income Statement

Gross Profit equals ______

Net Sales minus Cost of Goods Sold

supplies are _____ intended to be _____ - current assets; sold - current liability; sold - SE account; sold - SE; used - current assets; used

current assets; used

the gross profit percentage is the ratio to watch if you are worried about increased competition. if the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ______

decrease

why is inventory reported as a current asset?

inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date

under the _____ inventory system, inventory records are updated only at the end of the accounting period

periodic

Blog Inc., has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. its gross profit is ______

$20,000 gross profit = sales revenue - CGS

which line item would be found on a merchandiser's income sheet and not on a service firm's? - depreciation expense - sales revenue - cost of goods sold - service revenue

- sales revenue - CGS

to ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______ - aren't needed - detect theft - detect bookkeeping errors - detect shrinking

- detect theft - detect bookkeeping errors - detect shrinking

the Cost of Goods Sold equation is ______

Beginning Inventory + Purchases - Ending Inventory

the adjustment to record inventory shrinkage will decrease ______

Inventory on the balance sheet

which of the following are reported on the income statement? - Goods Available to Sell - Sales Revenue - Cost of Goods Sold - Gross Profit - Inventory

- sales rev - CGS - gross profit

which of the these will require a credit to the inventory account in a perpetual inventory system? - purchasing inventory on account - selling inventory for cash - purchasing inventory for cash - collecting cash for inventory previously sold on account - paying cash for inventory previously purchased on account - selling inventory on account

- selling inventory for cash - selling inventory on account

inventory shrinkage as a result of theft, damage, or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory _____ - only in a periodic system - only in a perpetual system - in both periodic and perpetual systems

only in a perpetual system

the _____ cycle is a series of activities that the company undertakes to generate sales and ultimately cash

operating

cost of goods sold equals beginning inventory plus _____ minus ending inventory

purchases

using a perpetual inventory system, when a company records a sale of merchandise, it must also record ______ - CGS, which will be reported on the income statement - an increase in its inventory - CGS, which will be reported on the BS - a decrease in its inventory

- CGS, which will be reported on the income statement - a decrease in its inventory

the cost of inventory sold is reported on the _____

income statement and not the balance sheet

a ______ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company

multistep

the gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. this ratio is used to: - compare one company with another - make comparisons over time - measure the frequency of inventory turnover - determine whether a company is collecting its receivables in a timely fashion

- compare one company with another - make comparisons over time

inventory shrinkage can be determined by comparing the ______ - info from the periodic inventory system to the physical count - info from the perpetual inventory system to the physical count - beginning inventory plus purchases minus CGS to the actual inventory balance from a physical count - beginning inventory minus purchases minus CGS to the actual inventory balance from a physical count - beginning inventory plus purchases plus CGS to the actual inventory balance from a physical count

- info from the perpetual inventory system to the physical count - beginning inventory + purchases - CGS to the actual inventory balance from a physical count

match each type of company with the type of goods or services it sells - service companies - merchandising companies - manufacturing companies

- service companies: sell services rather than physical goods - merchandising companies: sell goods that have been obtained from a supplier - manufacturing companies: sell goods they have made themselves

corporations with high sales volume, such as Walmart, usually have _____ - low gross profit percentages - high gross profit percentages - the same gross profit percentage as high-end retailers

low gross profit percentages