Merchandising Operations & Inventory (Ch. 5–6)
What is the difference between a merchandising and a service company?
Merchandising companies sell products to customers; service companies sell time or expertise.
What is accounts receivable?
Amounts owed to the company by customers for credit sales.
What are the main types of long-term tangible assets?
Property, plant, and equipment (PPE) — such as land, buildings, and equipment.
What are the three sections of the statement of cash flows?
Operating, Investing, and Financing activities.
What is the purpose of using Excel in accounting?
To organize, analyze, and visualize financial data for decision-making.
What does net sales include?
Sales revenue minus sales returns, allowances, and discounts.
What is the difference between the direct write-off and allowance methods?
Direct write-off records bad debts when they occur; allowance estimates uncollectibles in advance (GAAP-approved).
What is included in an asset’s capitalized cost?
All costs necessary to acquire and prepare the asset for use (purchase price, installation, transportation, etc.).
How is depreciation handled under the indirect method?
Added back to net income (non-cash expense).
What function in Excel calculates the average of a data set?
=AVERAGE(range).
How do you calculate gross profit?
Gross Profit = Net Sales – Cost of Goods Sold (COGS).
What is the adjusting entry to record estimated bad debts?
Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts.
How do you calculate straight-line depreciation?
(Cost – Residual Value) ÷ Useful Life.
What section includes purchasing equipment for cash?
Investing activities (cash outflow).
What Excel tool helps find totals automatically?
AutoSum or =SUM(range).
Under a perpetual inventory system, what are the journal entries when inventory is sold?
Debit Cash (or A/R); Credit Sales Revenue.
Debit COGS; Credit Inventory.
What is the effect of writing off a specific customer’s account?
Decreases both Accounts Receivable and Allowance for Doubtful Accounts — no change to total assets.
What happens if an asset is sold for more than its book value?
A gain is recorded.
Issuing stock for cash belongs to which section?
Financing activities (cash inflow).
What is conditional formatting used for?
To highlight specific data patterns, such as high expenses or overdue accounts.
How does FIFO differ from LIFO in rising prices?
FIFO reports higher net income and ending inventory; LIFO reports lower net income and taxes.
What ratio measures how quickly receivables are collected?
Accounts Receivable Turnover = Net Credit Sales ÷ Average Accounts Receivable.
Which assets are not depreciated?
Land and intangible assets with indefinite lives.
Paying dividends to shareholders belongs to which section?
Financing activities (cash outflow).
How can data analytics improve accounting decisions?
It helps identify trends, detect fraud, and make more accurate predictions.