Merchandising Operations and the Multistep Income Statement

Flashcards covering key concepts from merchandising operations and income statement analysis.

What is the primary difference between service and merchandising operations?

Merchandising operations involve buying and selling goods, while service operations provide services without transferring ownership of goods.

What does a periodic inventory system require at the end of the accounting period?

A physical count of inventory to determine the amount on hand and sold.

How often are records updated in a perpetual inventory system?

Records are updated continuously, every time inventory is bought, sold, or returned.

What does 'FOB shipping point' imply for recording sales?

The sale is recorded when the seller loads the goods onto the truck.

What are the two main components of every merchandise sale recorded in a perpetual inventory system?

Selling price and cost of goods sold.

What is reflected in a gross profit analysis?

Gross profit percentage, calculated as (Gross Profit / Net Sales) x 100.

What is implied by sales discount terms '2/30, n/60'?

A 2% discount is available if paid within 30 days, with the net amount due in 60 days.

What is a Refund Liability in the context of expected returns?

A liability recorded for expected refunds to customers for returned goods.

What does estimating shrinkage involve in a perpetual inventory system?

Tracking inventory losses and adjustments to reflect potential theft or loss.

What is the impact of inventory errors on financial statements?

Errors in ending inventory affect net income, assets, and stockholders' equity.