Beyond the basic entries in perpetual inventory system
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
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| Why doesn't the perpetual inventory system give a completely accurate count of inventory on hand? | show 🗑
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| How does a business assure themselves of having an accurate inventory recording system? | show 🗑
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| What does it mean to adjust Inventory and Cost of Goods Sold? | show 🗑
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| show | A merchandising company closes to Income Summary the accounts that affect net income.
Identify the temporary accounts by their balances and prepare one entry for credits and one for the debits. After closing entries, temporary accounts- zero balances.
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| show | Retained Earnings has a balance - carry it over to the next period. Previous period is closed, but the earnings are carried over.
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| What do merchandising companies widely use for their balance sheet? | show 🗑
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| What are two forms of financial statements used by merchandising companies? | show 🗑
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| show | There are several steps shown to determine the net income. It also makes a difference between operating and nonoperating activities. It highlights intermediate copmonents of income and shows subgroupings of expenses. p. 234
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| show | It has on one sept. It subtracts total expenses from total revenues to determine net income. All data is classified as revenues or expenses (expenses include cost of goods sold, operating expenses and other expenses and losses). p. 238; 5-14
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| What steps are included in a multiple-step income statement? | show 🗑
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| show | Sales revenue less sales returns and sllowances and sales discounts - illustration 3-8.
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| show | Generally, it is sales revenue minus cost of goods sold.ch. 5 - illustration 5-1. For a multiple-step income statement it is different.
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| show | Use net sales (sales revenue less sales returns, allowances and discounts) for sales revenue. subtract cost of goods sold to find gross profit. ill. 5-9, p. 235
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| show | Divide the amount of gross profit by net sales to find the gross profit rate (a percentage). Analysts prefer the rate to the amount to be more meaningful.
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| show | The gross profit. Operating expenses are not deducted yet, but managers and tohers do watch the trend of gross profit and compare it to other periods.
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| How do you the figure for operating expenses in a multiple-step income statement? | show 🗑
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| show | Net income amount is the "bottom line."
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| show | They are revenues and expenses and gains and losses unrelated to the company's main income-generating activities.
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| What are the categories listed in the multiple-step income statement for nonoperating activities? | show 🗑
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| Where are the nonoperating activities listed in the income statement of merchandising companies? | show 🗑
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| What is the ethics issue in disclosing nonoperating activities? | show 🗑
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| What is liquidity? | show 🗑
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| explain the recording of purchases under a perpetual inventory system. | show 🗑
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| How do you record sales revenues under a perpetual inventory system for a merchandising company? | show 🗑
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| show | Cost of goods sold is determined at the end of the period. A count is made to determine the ending balance of inventory. Beinning inventory plus cost of goods purchase minus cost of goods available for sale(ending inventory) = cost of goods sold.
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| How do the perpetual and periodic systems adjust for freight, returns, discounts, etc.? | show 🗑
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| show | Companies record revenues from sales when the sales are made, as in perpetual system, but they don't record the cost of the goods sold on the same date. They do that at the end of the period.
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| In a periodic system, where are purchases of merchandise recorded each day? Are returns, allowances, purchase discounts and freight costs recorded in the purchases account? | show 🗑
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| show | Freight-in costs are recorded in a temporary Freight-In account - normal balance is a debit. Freight-in is a part of cost of goods purchases. Freight costs are not subject to a purchase discount. Freight-in can also be called transportation-in.
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| show | They are listed in a temporary account whose normal balance is a credit.
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| show | Temporary account - Purchase Discounts - balance is normally a credit.
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Created by:
MarkCurtisMorgan