Chapter 6 Connect: Merchandising Operations and the Multistep Income Statement

Gross profit percentage is

(Net Sales - CGS / Net Sales)*100

What does gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

Which of the following are reported on the Income Statement

Gross profit, Sales Revenue, and Cost of Goods Sold

How do you find gross profit?

Sales Revenue (Net Sales) - CGS

Create an income statement in the proper order from top to bottom

Sales Revenue, Sales Discounts, Net Sales, Cost of Goods Sold, and Gross Profit

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to A/R (no other accounts were affected). What must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price.

Ace Electronics had CGS of $20,000. If purchases of Inventory during were $23,000 and EI was $6,000, the BI must have been

$3,000

Purchase transactions affect the

balance sheet and not the income statement

Goods Avail. for sale will (blank) when sold

become CGS on the income statement

CGS reports the

cost times the quantity of goods sold

Inventory consists of all

costs needed to get the inventory ready for sale

Inventory is recorded as a(n)

current asset on the balance sheet

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a

debit to A/R and CGS, credit to Inventory and Sales Revenue

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this,

liabilities will be overstated and assets will be overstated

A multistep income statement is useful to financial statement users because it

separates the CGS from other operating expenses, which allows the calculation of gross profit AND separates income statement items into meaningful components

What does freight-out mean?

the transportation cost associated with the delivery of goods from a supplier to its customers. This cost should be charged to expense as incurred and recorded within the cost of goods sold classification on the income statement.

The journal entry to record the payment within the discount period for goods previously purchased on account causes

total assets to decrease and total liabilities to decrease

In a perpetual system, the (blank) account is debited when a company purchases merchandise on account.

Inventory

Which line item would be found on a merchandiser's balance sheet and not on a service firm's?

Inventory

In a perpetual inventory system, which of the following statements are true?

The seller should record freight-out as a selling expense, the purchaser should record freight-in as an asset, Inventory

What does freight-in mean?

The shipping cost to be paid by the buyer of merchandise purchased when the terms are FOB shipping point.