Definitions
Inventory shrinkage
is loss of inventory occurring from theft, damage, and errors.
the purchase cost of inventory – purchase
returns and allowances – purchase
discount + Freight in
Net cost Inventory purchased
Gross profit minus operating expenses equals Net
income
False, Operating income
Assume Walmart pays a $75 freight charge on
June 3 for purchase with FOB shipping point.
Debit: Merchandise Inventory 75
Credit: Cash 75
Which account does a merchandiser use that a service company does not use?
A. Depreciation Expense
B. Supplies Inventory
C. Costs of Goods Sold
D. Unearned Revenue
C. Cost of Goods Sold
requires a physical count of inventory to determine inventory on hand
Periodic inventory system
Gross Profit percentage:
Gross Profit/Net Sales Revenue
The invoice price for a purchaser may need to be adjusted
for purchase returns or purchase allowances.
True
Target purchases $6,000 of goods, with
freight charge of $400, on June 20 on account.
Debit: Merchandise Inventory 6400
Credit: Accounts Payable 6400
TX Manufacturing purchased inventory for $2,500 and paid a $200 freight bill. TX Manufacturing returned $350 of the goods to the seller and then took a 2% purchase discount. What is TX Manufacturing’s final cost of the inventory that it kept?
A. $2,307
B. $2,303
C. $2,300
D. $2,107
4. A
Net Cost of Inventory Purchased = Purchase cost of inventory − Purchase returns and allowances
− Purchase discounts + Freight in = $2,500 − $350 − [($2,500 − $350) × 0.02) + $200 = $2,307
Estimated Returns Inventory
Is an asset account used to estimate the cost of merchandise inventory a company will receive in returns.
______________ are a reduction in the amount of revenue
earned on sales for early payment.
Sales Discount
An invoice is the buyer's request for payment from the purchaser.
False, Seller's request
On June 6, Fresno State returns 20 tablets from the June 1 purchase because they were damaged in shipment. These tablets cost $400 each.
Debit: Accounts Payable 8,000
Credit: Merchandise Inventory 8,000
Marathon Sports Gear had net sales of $562,000 and Cost of Goods Sold of $290,000.
How much gross profit did Marathon Sports Gear report?
A. $562,000
B. $852,000
C. $272,000
D. $290,000
C. Gross profit = Net sales revenue − COGS = $562,000 − $290,000 = $272,000
Sales Revenue
The amount a business earns from selling merchandise
inventory is called
When a seller grants a ____________ , the company
issues a credit memo indicating that the company will
reduce the customer’s Accounts Receivable or issue a
cash refund.
Sales allowance
The cycle of a merchandiser begins with the purchase of
merchandise inventory.
True
On September 5th, Best Buy returns 20 tablets from the September 1 purchase because they were damaged in shipment. These tablets were valued at a total of $6,500.
Debit: Accounts Payable 6,500
Credit Merchandise Inventory 6,500
Using the perpetual inventory system, which account is used to record the payment of freight for inventory purchased?
A. Cost of Goods Sold
B. Sales Revenue
C. Delivery Expense
D. Merchandise Inventory
D. Merchandise Inventory
single-step income statement and multi-step income statement
single-step: groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.
multi-step: contains subtotals to highlight significant relationships.
__________ is a liability account used to estimate the
amount of refunds that will be paid to customers in the future.
Refunds Payable
Debit terms are the payment terms of purchase or sale
as stated on the invoice.
False, Credit
Assume, Costco purchases $6,000 of goods, with a freight charge of $350, on June 20 on account of terms.
Debit: Merchandise Inventory 6350
Credit: Accounts Payable 6350
Assume Easy Electronics had Net Sales Revenue of $100,000, and Cost of Goods
Sold of $75,000. Average Merchandise Inventory was $15,000. What is the gross profit percentage for Easy Electronics for this period?
Gross profit = Net sales revenue − COGS = $100,000 − $75,000 = $25,000
Gross profit percentage = Gross profit / Net sales revenue = $25,000 / $100,000 = 25%