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| Whats the difference between a merchandising business and a service business? | Merchandising businesses acquire mer-chandise for resale to customers. It is the selling of merchandise, instead of a service, that makes the activities of a merchandising business different from the activities of a service business. |
| Gross Profit | Gross profit is the excess of (net) sales over cost of merchandise sold |
| Merchandise inventory (where and how is it reported?) | Reported on the balance sheet as merchandise inventory and is reported as a current asset because it is not normally sold within a year. |
| Multi-Step Income Statement (whats in the heading?) | Company, Income Statement, For the Year End _____ |
| Multi-Step Income Statement (components of revenue/gross profit) | Revenue from sales less sales returns and allowances and sales discounts, thus yields net sales. Net sales minus cost of merchandise sold = gross profit. |
| Multi-Step Income Statement (components of operating expenses) (2) | Selling expenses- (sales salaries, advertising, etc.) Administrative expenses- office salaries, rent, depreciation of office equipment. |
| All components of multi-step income statement (7) | revenue from sales- gross profit. Operating expenses. Income from operations. Other income and expense (rent revenue and interest expense). Income before taxes. Income taxes. Net Income. |
| Effect of an item being returned on a balance sheet: | Accounts receivable (Asset) is decreased by the amount paid back to the customer, Merchandise inventory (Asset) is increased by the cost of merch. sold, retained earnings go decrease by the difference of AR and merch. inventory. |
| Effects on the accounts and financial statements from paying an invoice: | Cash- dec. by invoice amount less buyers discount. Merch. Inventory- dec. by buyers discount. Accounts Payable- dec. by total invoice amount. |
| Effects on the accounts and financial statements from a debt memorandum: | Merch. inventory decreases equal to accounts payable. |
| debt memorandum | a request from the buyer for money due to a purchase return or purchase allowance (request for price adjustment) |
| Effects on the accounts and financial statements from FOB shipping point: | Cash dec. by shipping costs, Merch. inventory inc by product cost + shipping cost, AP inc by product cost |
| Periodic Method | the inventory records do not show the amount available for sale or the amount sold during the period. |
| Perpetual Method | each purchase and sale of merchandise is recorded in the inventory and the cost of merchandise sold accounts. |
| How do Periodic and Perpetual methods differ? | Under the periodic method, the inventory records do not show the amount available for sale or the amount sold during the pe-riod. In contrast, under the perpetual me-thod of accounting for merchandise inventory, each purchase and sale of merchandise is recorded in the inventory and the cost of merchandise sold accounts. As a result, the amount of merchandise available for sale and the amount sold are continuously (perpetually) disclosed in the inventory records. |
| What is the difference between multi-step and single step form of income statements? | The multiple-step form of income statement contains conventional groupings for reve-nues and expenses, with intermediate bal-ances, before concluding with the net in-come balance. In the single-step form, the total of all expenses is deducted from the total of all revenues, without intermediate balances. |
| advantages and disadvantages of single step form income statement? | The major advantages of the single-step form of income statement are its simplicity and its emphasis on total revenues and total expenses as the determinants of net in-come. The major objection to the form is that such relationships as gross profit to sales and income from operations to sales are not as readily determinable as when the multiple-step form is used. |
| *#8 CH4 | Sales to customers who use bank credit cards are generally treated as cash sales. The credit card invoices representing these sales are deposited by the seller directly into the bank, along with the currency and checks received from customers. |
| A credit memorandum issued by the seller of merchandise indicates_________ | Indicates the amount for which the buyer's account is to be decreased (decrease to Accounts Receivable) and the reason for the sales return or allowance. |
| A debit memorandum issued by the buyer of merchandise indicates __________ | Indicates the amount for which the seller's account is to be dcreased (decrease to Accounts Payable) and the reason for the purchases return or allowance. |
| What accounts would be affected to adjust for inventory shrinkage? | Cost of Merchandise Sold would be in-creased; Merchandise Inventory would be decreased |
| What accounts would be affected to adjust for abnormal inventory shrinkage so that it would be separately disclosed on the income statement? | Loss From Merchandise Inventory Shrinkage would be increased. |
