chapter 5

chapter 5 - the cycle This is necessary because the selling...

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John Rubinetti Professor Kravet Financial Accounting October 19, 2007 Chapter 5 Questions 15. When creating an income statement merchandising companies generally use the multi- step income statement format. This is due to the fact that this statement conveys the components of net income. This multi-step income statement includes three important facets; net income, gross profit and income from operations. Companies determine their gross profit by subtracting the cost of goods sold from the sales. Also the income from operations is found by subtracting the operating expenses from the gross profit. 16. The reason the operating cycle for a Merchandising Company is normally longer than that of a Service Company is because the purchase and sale of merchandise inventory lengthen
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Unformatted text preview: the cycle. This is necessary because the selling of inventory is the company’s primary source of revenue as opposed to a Service Company which provides a service and receives revenue for it. 22. The factors that affect the company’s gross profit rate are increased competition resulting in a lower selling price. Other factors would be when the company sells the products for a lower markup and things such as selling a product of lesser quality than the company previously sold. The company may be obligated to pay higher prices to its suppliers without being able to pass the costs on to the consumers....
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