Question

LOL. What are merchandising operations a) List and describe the operating cycle of a merchandising business: b) In your own words, define Cost of Goods Sold? c) In your own words, define Gross Profit and how is it calculated? a) What is the difference between the period and perpetual inventory systems? LO2. How are purchases of merchandise inventory recorded in a perpetual inventory system a) Using the perpetual system, Journalize for: a) the purchase of merchandise inventory of $1,000 on account with the terms of 2/10 or n/30; b) the payment of the merchandise inventory within the discount period. Date Accounts and Explanation Debit Credit b) Using the perpetual system, Journalize for: a) the purchase of merchandise inventory of $1,000, with related freight charge of $100, on account with the terms of 2/10 or n 30. Terms of shipment are FOB shipping point and the seller prepays the freight charge; b) the payment of the merchandise inventory within the discount period. Date Accounts and Explanation Debit Credit A

Answer 1

1.01
a)	Operating cycle of a merchandiser
1	Puchase of Goods
2	Booking into inventories
3	Sales on account
4	Account receivable
5	Collection
6	Cash recd
7	Going back to step 1 that is purchase of goods
b)	Cost of Goods sold
	Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs
c)	Gross Profit
	Gross profit is the profit which is derived after deducting COGS from revenue
d)	Difference in Period and perpetual inventory
	A perpetual inventory system is a method of inventory managementthat records real-time transactions of received or sold stock through the use of technology – generally considered a more efficient method than a periodic inventory system
	Periodic inventory is a system of inventory in which updates are made on a periodic basis for eg, a company may update all transactions done over a week on coming monday.
	The key difference is the time taken in updating the inventory records for purchase and consumption.
1.02
a)	Purchase of inventory $ 1000
	Inventory A/c Dr     1000
	To Creditors A/c     1000
	Payment within discount period - 2% discount when paid in 10 days
	Creditor A/c Dr   1000
	To Inventory  A/c  20
	To Cash   a/c  980
b)	Purchase of inventory $ 1000 freight $100 FOB Shipping point
	Inventory A/c Dr     1100
	To Creditors A/c     1100
	Payment within discount period - 2% discount when paid in 10 days
	Creditor A/c Dr   1100
	To Inventory  A/c  20
	To Cash   a/c  1080
	Assuming no discount on shipping charges
1.03
a)	Debtor A/c Dr   1000
	To Sales     1000
	COGS A/c Dr   550
	To Inventory   550
	Cash A/c Dr   980
	Sales Discount A/c Dr   20
	To Debtor  A/c   1000
1.06
a)	Gross Profit % = Gross Profit / Net Sales x 100
b)	GP % = 25000 / 100000 x 100 = 25%