SMCH06 - 6 MERCHANDISING TRANSACTIONS ANSWERS TO QUESTIONS...

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Solutions Manual, Chapter 6 153 6 MERCHANDISING TRANSACTIONS ANSWERS TO QUESTIONS 1. Additional accounts are Sales, Sales Discounts, Sales Returns and Allowances, and Merchandise Inventory. If a periodic inventory is employed, the following accounts will be found in addition to those listed above: Purchases, Purchase Discounts, Purchase Returns and Allowances, and Transportation-In. 2. To record a sale on account, Accounts Receivable is debited and Sales is credited. 3. Trade discounts are deductions from list or catalog prices to determine gross selling price. Chain discounts are simply several trade discounts linked together and are to be deducted sequentially in arriving at gross selling price. 4. Knowing the amounts of sales discounts, sales returns, and sales allowances may provide useful information to managers. 5. The two basic procedures are periodic inventory procedure and perpetual inventory procedure. Under periodic inventory procedure, the Merchandise Inventory account is only brought to its proper balance at the end of the accounting period by taking a physical inventory count. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale so that the current balance is shown in the account at all times. 6. The sole purpose of the Purchases account is to show the amount of merchandise purchased, at invoice prices, during the period. 7. The letters FOB mean free on board. FOB destination means the seller incurs the freight costs. 8. Delivery expense is a selling expense and is included with other selling expenses on the income statement. 9. Under periodic inventory procedure, the ending inventory is determined by a physical count. Any goods not on hand at the end of the period are assumed to have been sold. In fact, some of the goods may have been stolen, broken, etc. 10. The accountant multiplies the number of items of each class of goods by their cost. The aggregate cost of all types of items on hand is the total dollar amount of the inventory. 11. Cost of goods sold is determined by deducting ending inventory from the cost of goods available for sale. The ending inventory amount is determined by taking a physical inventory count. 12. We can use the information to determine the cost of goods sold. The ending inventory is deducted from cost of goods available for sale to arrive at cost of goods sold. 13. The major sections of a classified income statement and the order in which they appear are: a. Operating revenues - all revenues derived from the major activities of the business. b. Cost of goods sold - the expense incurred that relates directly to the cost of the physical units of product delivered to customers. c. Operating expenses
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This note was uploaded on 02/08/2011 for the course ACCT 2101 taught by Professor Turner during the Spring '08 term at Georgia Institute of Technology.

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SMCH06 - 6 MERCHANDISING TRANSACTIONS ANSWERS TO QUESTIONS...

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