Requirement 2 purchases sales revenue less purchase

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Requirement 2PurchasesSales RevenueLess: Purchase DiscountsLess: Sales DiscountsPurchase Returns and AllowancesSales Returns and AllowancesEquals Net PurchasesAdd: Freight InNet Cost of PurchasesEquals Net Sales RevenueThe cost of freight-in is included in the cost of merchandise inventory.Requirement 3Although a perpetual inventory system provides a daily running record of merchandise inventoryon hand, taking a physical count of inventory at least once a year is important for determining theactual quantity of inventory on hand and testing the accuracy of the perpetual inventory records. Because a perpetual inventory system maintains accounting records against which the physical count can be compared, it provides better control over inventory and possible loss due to damageor theft (inventory shrinkage).Requirement 4a.If inventory costs are rising, the FIFO inventory costing method maximizes net income.b.If inventory costs are rising, the LIFO inventory costing method results in paying the least amount of income tax.Horngren’s Accounting   10/e    Solutions Manual6-111
Decision Case 6-2Strategies for doubling net income include the following:Analyze the mix and level of operating expenses to identify opportunities to increase efficiencies (via cost control) and effectiveness (via sales in excess of costs). This would include reducing costs by eliminating non-value-added activities (e.g., some general and administrative activities) and focusing on activities with the greatest likelihood of increasing sales and yielding returns in excess of the cost of resources invested (e.g., advertising, marketing, and promotion activities). Consider offering specialty high-quality products that yield higher profit margins (products that the nearby discount applicant store might not offer).Train employees in effective customer relationship skills to increase first-time sales, repeat business, and new business created by favorable word-of-mouth.Offer superior post-sales customer support using resources already available (no additional investment or new employees required).Ethical Issue 6-1Requirement 1Changing accounting methods year-to-year may compromise a company’s credibility, which can create difficulties with external stakeholders. For example it might be more difficult for the company to borrow or raise money from outside investors at a reasonable cost. It might also raise the question: “What does the company have to hide?”Requirement 2Changing accounting methods every year violates the consistency principle.Requirement 3The company and its various stakeholders could be harmed when the company changes accounting methods too often. External decision makers often find it challenging to track and interpret a company’s operating results and financial position over time. It becomes difficult to ascertain what aspects of the company’s financial results are “real” and what aspects are simply due to changes in accounting methods.

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