Midterm Study Guide: Merchandising Operations and Inventory

These flashcards cover key concepts related to merchandising operations and inventory management.

What is the journal entry for a cash purchase of inventory?

Increases inventory and decreases cash.

What is the journal entry for a purchase on account?

Increases inventory and creates a liability.

What does a purchase discount (e.g., 2/10, n/30) indicate?

A discount is available if paid within the discount period.

What is the difference between FOB Shipping Point and FOB Destination?

FOB Shipping Point: Buyer pays for shipping (cost added to inventory). FOB Destination: Seller pays for shipping (expense for seller).

What is recorded when inventory is sold?

Dr. Cash/Accounts Receivable, Cr. Sales Revenue, Dr. Cost of Goods Sold, Cr. Inventory.

What is the formula for calculating Gross Profit?

Gross Profit = Sales Revenue - Cost of Goods Sold.

How does a periodic inventory system update inventory?

At the end of the period.

What is the FIFO inventory costing method?

First-In, First-Out; older costs go to COGS and newest costs remain in inventory.

What is LIFO in inventory costing?

Last-In, First-Out; newest costs go to COGS and older costs remain in inventory.

Define the Allowance Method for bad debts.

Estimates bad debts in advance.

What is the direct write-off method used for?

Used when an account is deemed uncollectible.

What must be disclosed according to the Full Disclosure principle?

Methods used in inventory accounting.