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Unformatted text preview: Chapter Eight Questions 1. Define the term merchandise inventory. The products that merchandising companies buy and sell are called merchandise inventory. 2. Identify three examples of merchandise inventory. Food, clothing, textbooks, toys, automobiles, appliances, etc. 3. What is the major difference between merchandising and manufacturing? Merchandising companies sell the products they purchase . Manufacturing companies take the products they purchase, combine them with other products to create different products, which they then sell. 4. Identify four major steps involved with merchandise inventory. Step 1: purchase merchandise from suppliers. Step 2: sell merchandise to customers. Step 3: collect cash from customers. Step 4: pay cash to suppliers. 5. What is the primary objective of the four merchandise inventory steps you identified in question 4? The primary objective of merchandising companies is to increase their resources by charging customers more than it cost the companies to buy the products and get them to customers. 6. How is gross profit calculated? Gross profit = net sales - cost of goods sold. 7. Why is gross profit important to merchandising companies? Unless companies can charge customers more than it cost the companies to buy the products, it is virtually impossible for them to increase their resources through management activities. 8. State the formula for calculating gross profit percentage. Gross profit percentage = gross profit / net sales. 9. How often are merchandise inventory records updated in a perpetual inventory system? Perpetual inventory systems update inventory records constantly . Whenever a transaction occurs that changes merchandise, the perpetual inventory system updates the inventory records. 10. How does a perpetual inventory system differ from a periodic inventory system? Periodic inventory systems update inventory records only at the end of an accounting period, while perpetual inventory systems update inventory records constantly . For practical purposes this means periodic inventory systems update inventory records at the end of each month, while perpetual inventory systems may update inventory records numerous times each day. 11. What is the reason merchandising companies inspect the merchandise they purchase? Merchandise is inspected to make certain it is what the company ordered and is in good enough condition to be sold to customers. 12. What is the most important use merchandising companies make of their merchandise inventory? Most merchandise inventory is sold to customers. 13. Why do merchandising companies maintain some merchandise inventory at the end of each accounting period? Merchandising companies keep some inventory on hand at the end of each period in order to have merchandise available to be sold to customers at the beginning of the next period....
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.
- Spring '11
- Financial Accounting