1. Merchandising Activities

What is merchandise?

refers to products, also called goods, that a company buys to resell.

How does a merchandiser earn net income?

By buying and selling merchandise.

What are merchandisers?

wholesalers or retailers

What is a wholesaler?

buys products from manufacturers and sells them to retailers.

What is a retailer?

buys products from manufacturers or wholesalers and sells them to consumers.

How do you calculate net income for a merchandiser?

Net income = net sales (revenues from selling merchandise) - cost of goods sold - expenses.

How do you calculate gross profit?

Net sales - Cost of goods sold

How does gross profits relate to the net income?

Gross profits makes up part of the equation for calculating net income.

What is another way to write the net income equation using gross profits?

Net income = gross profit - expenses

What is the definition of sales?

Revenue from selling merchandise

What is cost of goods sold definition?

The expense of buying and preparing merchandise.

What is another name for cost of goods sold?

cost of sales

What statement does net sales, cost of goods sold, and gross profit go on?

Income statement

A merchandiser's balance sheet has a current asset called…

merchandise inventory.

What does merchandise inventory refer to?

products that a company owns and intends to sell.

What does inventory cost include?

Inventory cost includes the cost to buy the goods, ship them tot he store, and make them ready for sale.

What are the 5 steps in the operating cycle for a merchandiser with credit sales?

1. cash purchases of merchandise

2. inventory for sale

3. credit sales

4. accounts receivable

5. receipt of cash

Are the length of the operating cycles the same across businesses?

No, department stores often have operating cycles of two to five months. Operating cycles for grocery stores are usually from two to eight weeks.

Why do companies try to keep their operating cycles short?

because assets tied up in inventory and receivables are not productive. Cash sales shorten operating cycles.

A company’s merchandise available for sale consists of…

what it begins with (beginning inventory) and what it purchases (net purchases).

The merchandise available for sale is either…

sold (expensed on the income statement as cost of goods sold) or kept for future sales (as inventory, a current asset on the balance sheet).

What are the two ways companies can account for inventory?

the perpetual system or periodic system.

What is the perpetual inventory system?

records cost of goods sold at the time of each sale.

What is the periodic inventory system?

records cost of goods sold at the end of the period.

What is used more often these days?

perpetual inventory system.

What is the formula for goods available for sale?

goods available for sale = beginning inventory + net purchases

What is the formula for cost of goods sold?

goods available for sale - ending inventory (formula for goods available for sale is on previous flashcard)

Review Need-To-Know 5-1