Accounting Basics Merchandising and Special Topics Syllabus

Merchandising and Special Topics syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Merchandising and Special Topics in Accounting Basics, not a summary of it.

1. 1

   Accounting for Merchandising Operations

   3 topics

   • Merchandising vs. Service Operating Cycle
   • Purchases and Sales of Inventory
   • Cost of Goods Sold
2. 2

   Inventory Systems and Valuation

   3 topics

   • Periodic vs. Perpetual Systems
   • Inventory Costing Methods
   • Lower of Cost or Market
3. 3

   Cash and Internal Control

   3 topics

   • Principles of Internal Control
   • Bank Reconciliation
   • Petty Cash Fund
4. 4

   Receivables and Payables

   3 topics

   • Accounts Receivable
   • Notes Receivable and Interest
   • Accounts Payable and Current Liabilities
5. 5

   Long-Lived Assets and Payroll

   3 topics

   • Plant Assets and Depreciation Methods
   • Disposal of Plant Assets
   • Payroll Accounting Basics

Merchandising and Special Topics flashcards for Accounting Basics

18 of 67 cards from the Merchandising and Special Topics deck — real questions with worked answers.

1. How does the operating cycle of a merchandising company differ from that of a service company?

   A service company's cycle is: perform service $\to$ receive cash (or A/R). A merchandising company adds an inventory step: buy inventory $\to$ sell inventory (creating A/R) $\to$ collect cash. The merchandiser's cycle is generally longer because cash is first tied up in inventory before any sale occurs.

2. What is the primary source of revenue for a merchandising company, and what is its largest single expense?

   Primary revenue is Sales Revenue (from selling merchandise inventory). The largest expense is typically Cost of Goods Sold (COGS), the cost of the inventory that was sold.

3. Distinguish a wholesaler from a retailer.

   A wholesaler buys goods from manufacturers and sells them to retailers (and other businesses). A retailer buys from wholesalers or manufacturers and sells directly to the final consumer.

4. Under a perpetual inventory system, what journal entry records a purchase of merchandise on account?

   Debit Inventory and credit Accounts Payable for the cost of the goods purchased. The Inventory account is updated with every purchase.

5. What do the credit terms $2/10, n/30$ mean?

   A buyer may take a $2\%$ cash discount if payment is made within 10 days; otherwise the full (net) amount is due within 30 days of the invoice date.

6. Under the perpetual system, how does a buyer record a purchase discount taken?

   When paying within the discount period, credit Inventory for the discount amount (reducing inventory cost), debit Accounts Payable for the gross amount, and credit Cash for the net amount paid.

7. What is the difference between FOB shipping point and FOB destination for freight and ownership?

   FOB shipping point: ownership passes to the buyer at the seller's dock, and the buyer pays freight (Freight-In, added to Inventory). FOB destination: ownership passes when goods reach the buyer, and the seller pays freight (Freight-Out, a selling expense).

8. Under the perpetual system, what two journal entries record a sale of merchandise on account?

   (1) Debit Accounts Receivable and credit Sales Revenue at the selling price. (2) Debit Cost of Goods Sold and credit Inventory at the cost of the goods sold.

9. What type of accounts are Sales Returns and Allowances and Sales Discounts, and how do they appear on the income statement?

   They are contra-revenue accounts (normal debit balance). They are subtracted from Sales Revenue to arrive at Net Sales.

10. Give the formula for Net Sales.

    $$\text{Net Sales} = \text{Sales Revenue} - \text{Sales Returns and Allowances} - \text{Sales Discounts}$$

11. State the basic formula for Cost of Goods Sold (COGS) using beginning and ending inventory.

    $$\text{COGS} = \text{Beginning Inventory} + \text{Net Purchases} - \text{Ending Inventory}$$

12. What is Cost of Goods Available for Sale, and how is it split?

    $$\text{Cost of Goods Available for Sale} = \text{Beginning Inventory} + \text{Net Purchases}$$ It is allocated between COGS (goods sold) and Ending Inventory (goods still on hand).

13. How is Net Purchases calculated?

    $$\text{Net Purchases} = \text{Purchases} + \text{Freight-In} - \text{Purchase Returns and Allowances} - \text{Purchase Discounts}$$

14. Define Gross Profit and give its formula.

    Gross Profit is the amount left from sales after covering the cost of the merchandise sold. $$\text{Gross Profit} = \text{Net Sales} - \text{COGS}$$

15. What is the gross profit rate and its formula?

    It measures the percentage of each sales dollar retained as gross profit. $$\text{Gross Profit Rate} = \frac{\text{Gross Profit}}{\text{Net Sales}}$$

16. Compare the perpetual and periodic inventory systems in how they track inventory.

    Perpetual: Inventory and COGS are updated continuously with every purchase and sale, giving a running balance. Periodic: Inventory is not updated during the period; COGS is computed only at period-end after a physical count.

17. Under the periodic system, what account is debited when merchandise is purchased on account?

    Debit the temporary account Purchases (not Inventory) and credit Accounts Payable. The Inventory account is adjusted only at period-end.

18. Under the periodic system, is Cost of Goods Sold recorded at the time of each sale?

    No. Under periodic, only the revenue entry (debit A/R or Cash, credit Sales) is made at the sale. COGS is calculated at the end of the period using the COGS formula after a physical inventory count.

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