Econ 202 Ch. 4

Explain how to determine gross profit on an income statement

Cost of goods sold is subtracted from net sales.

Merchandise Inventory

-products that a company owns and intends to sell -Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.

The cash operating cycle for a merchandiser begins with cash purchases of merchandise and ends with _____.

receipt of cash

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used

Debit Merchandise Inventory $300; credit Cash $300.

A merchandiser has four closing journal entries at the end of an accounting cycle.

-Close the dividends account. -Close expense accounts. -Close revenue accounts. -Close the income summary account.

Cost of goods sold is characterized by?

-Cost of goods sold includes the expenses of buying and preparing an item for sale. -Cost of goods sold is used to figure gross profit. -Cost of goods sold is an expense reported on the income statement. -Cost of goods sold is also called cost of sales.

Which of the following costs are included in merchandise inventory?

-Purchase costs -Costs necessary to ready the merchandise for sale -Shipping fees

statements that are correct regarding the closing entries for a merchandiser using the perpetual inventory system

-Sales Discounts is closed with the expense accounts. -Cost of goods sold is closed with the expense accounts. -The Dividends account is closed to Retained Earnings -Sales Returns and Allowances is closed with the expense accounts. -Sales is closed as a revenue account.

entries for a merchandiser using the perpetual inventory system

-Sales Discounts is closed with the expense accounts. -Sales is closed as a revenue account. -The Dividends account is closed to Retained Earnings -Cost of goods sold is closed with the expense accounts. -Sales Returns and Allowances is closed with the expense accounts.

Merchandise inventory can be described as

-an asset increased with a debit. -products that a company owns and intends to sell. -an account appearing on a balance sheet of a merchandiser.

purchase return

A purchase return refers to merchandise a buyer acquires, but then returns to the seller.

two classifications of operating expenses on a multiple-step income statement?

Selling; general and administrative

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. (Check all that apply.) . 1.Terms FOB shipping point means the seller of the goods is responsible for freight charges. 2.When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. 3.Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. 4.When the shipping costs are the responsibility of the seller, then the Merchandise Inventory account is debited. 5.Terms FOB destination means that the seller is responsible for shipping costs. 6.Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.

2,3,5,6

sales allowance

a reduction in the selling price of defective or unacceptable merchandise sold to customers (return but not for full)

Gross profit is computed as net______ minus cost of goods sold.

sales

which statements below are correct regarding merchandise available for sale during a period.

-Beginning inventory + Net purchases = Merchandise available for sale -Ending inventory + Cost of goods sold = Merchandise available for sale

The components of a merchandiser's multi-step income statement are

1. net sales 2.cost of goods sold 3.gross profit 4.expenses 5.net income

Operating Cycle for a Merchandiser

1. purchases 2. merchandise inventory 3. credit sales 4. accounts receivable 5. cash collection

Demonstrate how to prepare a multiple-step income statement by ranking the items below in the order they would appear on a multiple-step income statement of a merchandiser.

1. sales 2. cost of goods sold 3. gross profit 4. operating expenses 5. income of operations 6. other revenues and expenses

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

shrinkage

Shrinkage refers to the loss of inventory due to theft, breakage or deterioration.