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ACC120-notesonCh6

ACC120-notesonCh6 - &7Notes (loss Multiplestep

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Accounting 120 Chapter 6 & 7 Notes Differences Between a Service Company and a Merchandising Company Primary Source of Revenue Income Measurement for Merchandise Companies     Sales revenue –less  cost of goods sold –equals  gross profit –less operating expenses –equals  net income (loss) Multiple step income statement Evaluating Profitibility Gross Profit Rate    Gross Profit/Net Sales Gross Profit Rate - The percent at which each sales dollar exceeds the cost per dollar. Gross Profit is also called “markup” Profit Margin Ratio   Net Income/Net Sales o measures the income earned per dollar of net sales Specific Identification – matches or identifies each unit of inventory with its actual  cost. - practicable for companies selling unique, expensive products First in, first out method – assume that the first units purchased are the first units  sold
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Average Cost Method –  Perpetual Inventory Management System Every purchase and every sale gets picked up by the computer system. When we get to the end of the year, in a perfect world, cost of goods sold and  inventory should correct. The business still must count for inventory once a  year because of: o Theft o Errors o Spoilage o Damage Periodic          “         “        “ o Record purchases and only records and keeps track of slaes revenue.  We do not at the time of the sale, record the                      Dr         Cr A/R                        20      Sales revenue                 20 Cost of goods sold   12                 Inc. Statement      Inventory                        12        Bal. Sheet
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