final chapter 5 - Chapter 5 Merchandising companies that...

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Merchandising companies that purchase and sell directly to consumers are called retailers. Merchandising companies that sell to retailers are known as wholesalers. The cost of goods sold is the total cost of merchandise sold during the period The perpetual system directly adjusts the Merchandise Inventory account for any transaction that affects inventory (such as freight costs, returns, and discounts). The periodic system does not do this. Under the perpetual inventory system, companies record purchases of merchandise for sale in the Merchandise Inventory account. The letters FOB mean free on board. Thus, FOB shipping point means that the seller places the goods free on board the carrier, and the buyer pays the freight costs. Conversely, FOB destination means that the seller places the goods free on board to the buyer's place of business, and the seller pays the freight Companies record sales revenues, like service revenues, when earned, in compliance with the revenue recognition principle. For internal decision-making purposes, merchandising companies may use more than one sales account. As sales returns and allowances . These are transactions where the seller either accepts goods back from a purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods Sales Returns and Allowances is a contra revenue account to Sales. The normal balance of Sales Returns and Allowances is a debit A company's gross profit may be expressed as a percentage by dividing the amount of gross profit by net sales A decline in a company's gross profit rate might have several causes. The company may have begun to sell products with a lower “markup” The profit margin ratio measures the percentage of each dollar of sales that results in net income. We compute this ratio by dividing net income by net sales (revenue) for the period. Which of the following statements about a periodic inventory system is true? The increased use of computerized systems has increased the use of the periodic system. Companies determine cost of goods sold only at the end of the accounting period. Companies continously maintain detailed records of the cost of each inventory purchase and sale. The periodic system provides better control over inventories than a perpetual system. Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? A return of merchandise inventory to the supplier. Payment of freight costs for goods shipped to a customer. Payment of freight costs for goods received from a supplier. A purchase of merchandise. Which sales accounts normally have a debit balance? a) Sales discounts.
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final chapter 5 - Chapter 5 Merchandising companies that...

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