acc 201 study - Chapter5 Accountingfor

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Chapter 5 Accounting for  merchandising operations Merchandising Operations Merchandising firms buy finish products for resale to a customer. They do not manufacture the products. Manufacturers convert raw materials and components into finished products. Wholesalers buy finished products in large volumes from manufacturers and sell the product                         in smaller quantities to retailers. Retailers typically buy products from                      wholesalers for sale to the general public. Operating Cycle of a Merchandising Firm Three primary steps for merchandising firms: Purchase of merchandise —inventory Sale of the merchandise —accounts receivable Payment from the customer—cash Operating Cycle of a Service Firm Two primary steps for service firms: Perform a service—accounts receivable but no inventory Payment from the customer—cash Cost Flows A company begins the year with a certain amount of inventory— Beginning Inventory Added to this are the additional  Cost of Goods Purchased Together, this makes up the  Cost of Goods Available for Sale From this amount, some of the inventory is sold—  Cost of Goods Sold The remaining amount makes up the  Ending Inventory Cost Flows Inventory Systems Perpetual system The cost of merchandise sold is calculated after every sale. Inventory balance is kept “perpetually” up-to-date. Provides greatest control over inventory. Better able to determine theft or spoilage. Periodic system Cost of merchandise sold is computed periodically when  a physical count of remaining inventory is taken. Actual balance of inventory is unknown until the periodic count. Select the correct answer. Which of the following best describes the flow of inventory costs? The cost of goods purchased plus beginning inventory is greater than the cost of goods sold plus ending inventory. The cost of goods purchased plus beginning inventory is less than the cost of goods sold plus ending inventory. The cost of goods purchased plus beginning inventory is equal to the cost of goods sold plus ending inventory. The cost of goods available for sale is equal to ending inventory less beginning inventory. Learning Objective 2 Accounting for Purchases of Merchandise When the perpetual inventory system is used, a company debits the Inventory account for the acquisition cost.  If the purchase is for cash, then the Cash account is credited.  If the acquisition is on credit,  Accounts Payable is credited.   Assume Kali Company purchases 200 cameras for resale for $42,000.  The following journal entry records this accounting transaction.
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