Accouting Exam 2 Review

Accouting Exam 2 Review - Accounting Exam Two: Review...

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Accounting Exam Two: Review Chapter 5:Accounting for Merchandising Operations Retailers- merchandising companies that purchase and sell directly to consumers Wholesalers- merchandising companies that sell to retailers Sales revenue/sales- primary source of revenues for merchandising companies Merchandising company has two categories of expenses: costs of goods sold and operating expenses Costs of goods sold- total cost of merchandise sold during the period. Directly related to the revenue recognized from the sale of goods Purchase of merchandise inventory and its eventual sale lengthen the operating cycle for merchandising companies Merchandise companies use one of two systems to account for inventory: perpetual inventory system or a periodic inventory system. Perpetual inventory system- companies keep detailed records of the cost of each inventory purchase and sale. Records continuously show the inventory that should be on hand for each item. Company determines the costs of goods sold each time a sale occurs. Periodic inventory system- companies don’t keep detailed inventory records of the goods on hand throughout the period. They determine the costs of goods sold only at the end of the accounting period. To determine cost of goods sold: o Determine the cost of goods on hand at the beginning of the accounting period o Add it to the cost of goods purchased o Subtract the cost of goods on hand at the end of the accounting Companies that sell merchandise with high unit values traditionally use the perpetual system accounting records continuously show the quantity and the cost of the inventory that should be on hand at any time Perputual system requires additional clerical work and additional cost to maintain the subsidiary records computerized system can contribute system can minimize this cost
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Purchase invoice-document that supports each credit purchase. Indicates the total purchase price and other relevant information Purchase of merchandise inventory o Merchandise Inventory Accounts Payable FOB Shipping point- the seller places the goods free on board the carrier and the buyer pays the freight costs. o Merchandise Inventory Accounts Payable FOB Destination point- seller places the goods free on board to buyer’s place of business and the seller pays the freight. o Freight-out (Delivery Expense) Cash Purchase return- return of goods from buyer to the seller for a cash or credit refund o Accounts Payable Merchandise Inventory Purchase allowance- a deduction made to the selling price of merchandise, granted by the seller so that the buyer will keep the merchandise Purchase discount- a cash discount claimed by a buyer for prompt payment of a balance due. Credit terms specify the amount of the cash discount and time period in which it is
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Accouting Exam 2 Review - Accounting Exam Two: Review...

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