Page 266 - Accounting Principles (A Business Perspective)

6. Merchandising transactions

d. USD 1,000.
e. USD 3,600.
A classified income statement consists of all of the following major sections except for:

a. Operating revenues.
b. Cost of goods sold.
c. Operating expenses.
d. Nonoperating revenues and expenses.
e. Current assets.
(Appendix) Closing entries for merchandise-related accounts include all of the following except for:
a. A credit to Sales Discounts.

b. A credit to Merchandise Inventory for the cost of ending inventory.
c. A debit to Purchase Discounts.
d. A credit to Transportation-In.
e. A debit to Sales.
Now turn to “Answers to self-test” at the end of the chapter to check your answers.
Questions

➢ Which account titles are likely to appear in a merchandising company's ledger that do not appear in
the ledger of a service enterprise?

➢ What entry is made to record a sale of merchandise on account under periodic inventory procedure?
➢ Describe trade discounts and chain discounts.
➢ Sales discounts and sales returns and allowances are deducted from sales on the income statement to
arrive at net sales. Why not deduct these directly from the Sales account by debiting Sales each time
a sales discount, return, or allowance occurs?
➢ What are the two basic procedures for accounting for inventory? How do these two procedures
differ?
➢ What useful purpose does the Purchases account serve?
➢ What do the letters FOB stand for? When terms are FOB destination, who incurs the cost of freight?

➢ What type of an expense is delivery expense? Where is this expense reported in the income
statement?

➢ Periodic inventory procedure is said to afford little control over inventory. Explain why.
➢ How does the accountant arrive at the total dollar amount of the inventory after taking a physical
inventory?
➢ How is cost of goods sold determined under periodic inventory procedure?

➢ If the cost of goods available for sale and the cost of the ending inventory are known, what other
amount appearing on the income statement can be calculated?

➢ What are the major sections in a classified income statement for a merchandising company, and in
what order do these sections appear?
➢ What is gross margin? Why might management be interested in the percentage of gross margin to
net sales?

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