6 Merchandising and Inventory Free Online FlashCards

What is a merchandising business?

A business that earns revenue by buying goods and reselling them to customers.

How does merchandise cost move from inventory to expense?

Unsold merchandise is an asset. When goods are sold, their cost becomes cost of goods sold (COGS), an expense.

How do you calculate net sales?

$\text{Net sales}=\text{sales revenue}-\text{sales returns and allowances}-\text{sales discounts}$.

How do you calculate gross profit?

$\text{Gross profit}=\text{net sales}-\text{COGS}$.

How is a goods purchase recorded in a perpetual system?

In a perpetual system, debit Merchandise Inventory and credit Cash or Accounts Payable.

What two entries record a sale in a perpetual system?

Record the revenue by debiting Cash or Accounts Receivable and crediting Sales Revenue. Separately, debit COGS and credit Merchandise Inventory for the goods’ cost.

What does a perpetual inventory system track continuously?

It updates inventory records as purchases and sales occur and records COGS with each sale, providing a running book balance.

How does a periodic inventory system handle sales during the period?

It records purchases in temporary purchase accounts and does not update inventory or record COGS for each sale.

How is COGS calculated under a periodic system?

$\text{Beginning inventory}+\text{net purchases}=\text{goods available for sale}$; then $\text{goods available for sale}-\text{ending inventory}=\text{COGS}$.

What adjustments are reflected in net purchases?

Net purchases account for purchase returns, allowances, and discounts; they typically include freight-in.

Why is a physical inventory count needed in a perpetual system?

A physical count can reveal theft, damage, or recording errors. Under a perpetual system, a shortage is adjusted, often by debiting COGS and crediting Inventory.

What is specific identification?

Specific identification assigns each item’s actual cost to the item sold. It suits distinct, high-value goods such as cars or custom equipment.