Terms
This type of business focuses on earning money by purchasing goods and reselling them at a profit.
Merchandising business
This inventory system updates records in real time for every purchase or sale.
Perpetual inventory system
If a company’s net sales are $10,000 and COGS is $7,000, what is their gross profit?
$3,000
This global retail giant uses a perpetual inventory system and reported a 5.7% increase in COGS in 2024. Name it.
Walmart
What is the term for reductions in sales revenue caused by returned merchandise or customer price adjustments?
Sales Return and Allowances
This contra account is used when a supplier reduces the cost of purchases due to returns or price adjustments.
Purchase returns and allowances
Commonly used by smaller businesses and updates inventory at the end of an accounting period.
Periodic inventory system
You purchased $8,000 of inventory, returned $1,000, and received a discount of $500. What are your net purchases?
$6,500
This local furniture store uses the periodic inventory system to manage stock. Name it.
LUXMOOD Furniture
Name the type of expenses required to keep a business running, such as rent, utilities, and salaries.
Operating expenses
The financial gain of a business after deducting the costs of producing or purchasing goods.
Gross profit
If a business prefers a simpler, cost-effective way to manage inventory but risks stockouts, which system would they choose?
Periodic inventory system
A store has $4,000 in beginning inventory, $8,000 in purchases, and $3,000 in ending inventory. What is their COGS?
$9,000
This company, which uses both inventory systems, saw a 2.79% decline in COGS in 2024. Name it.
Home Depot
Why might a merchandising business offer a sales discount to its customers?
To encourage early payment of invoices.
The shipping cost paid by a buyer to bring inventory or goods to their location.
Freight-in
Which inventory system would a large-scale retailer like Walmart most likely use, and why?
If sales are $6,000, sales returns and allowances are $500, and sales discounts are $300, what are net sales?
$5,200
This tech company relies on a perpetual inventory system and experienced a 1.77% decline in COGS in 2024. Name it.
Apple
What is the primary difference in how operating expenses are treated compared to the cost of goods sold (COGS) on a multi-step income statement?
Operating expenses are subtracted from gross profit to calculate net income, while COGS is subtracted from net sales to calculate gross profit.
Detailed income statement that separates operating revenues and expenses from non-operating ones.
Multiple step income statement
One disadvantage of the periodic inventory system that doesn’t apply to the perpetual inventory system.
The inability to track inventory in real time, leading to potential stockouts or overstocking
Calculate the total cost of goods available for sale: Beginning inventory is $2,000, purchases are $6,000, purchase returns are $1,000, and freight-in is $500.
$7,500
Compare why Walmart and Apple both use the perpetual inventory system, but their COGS trends differ.
Walmart needs it for retail stock tracking, while Apple uses it for tech production efficiency.
What does the term "2/10, net 30" mean, and how can it benefit the buyer?
It means the buyer gets a 2% discount if payment is made within 10 days; otherwise, the full amount is due within 30 days. It benefits the buyer by saving money.