Concept Introduction:
Operating cycle:
Operating cycle is the chain of business activities performed in an organization. An organization can be manufacturing, servicing of merchandising type. For a merchandiser, the main business activities are the purchase, payment to the supplier, sales, and receipts from the customer. Hence the operating cycle of a merchandiser is limited as compared with the operating cycle of a manufacturer.
The Operating cycle mainly includes following activities:
-Purchases from the supplier (either cash or on account)
-Payment to suppliers
-Inventory
-Sales (either cash or on account)
-Collection from customer
The formula to calculate the operating cycle is as follows:
Net Operating Cycle = Inventory Period + Accounts Receivable Period − Accounts Payable Period
To Indicate:
The effect of the operating cycle on the difference in the prices of given stores.
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Cornerstones of Financial Accounting
- Exercise 4-10 (Algo) Recording sales, purchases, shipping, and returns—buyer and seller LO P1, P2 Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. May 11 Sydney accepts delivery of $21,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $14,405. Sydney pays $650 cash to Express Shipping for delivery charges on the merchandise. May 12 Sydney returns $1,400 of the $21,500 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $938. May 20 Sydney pays Troy for the amount owed. Troy receives the cash immediately. (Both Sydney and Troy use a perpetual inventory system and the gross method.) 1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.arrow_forwardQuestion 1 of 6View PoliciesCurrent Attempt in ProgressThe following are selected transactions of Kingbird Company. Kingbird sells in large quantities to other companies and also sells itsproduct in a small retail outlet.March 131531-/1 = :Sold merchandise on account to Dodson Company for $10,600, terms 2/10, n/30.Dodson Company returned merchandise with a sales price of $600 to Kingbird.Kingbird collected the amount due from Dodson Company from the March 1 sale.Kingbird sold merchandise for $600 in its retail outlet. The customer used his Kingbird credit card.Kingbird added 2.0% monthly interest to the customer's credit card balance.Prepare journal entries for the transactions above. (Ignore cost of goods sold entries and explanations.) (Credit account titles areautomatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)arrow_forwardExercise 4-12 (Algo) Recording purchases, sales, returns, and shipping LO P1, P2 Following are the merchandising transactions of Dollar Store. November 1 Dollar Store purchases merchandise for $1,700 on terms of 2/5, n/30, FOB shipping point, invoice dated November 1. November 5 Dollar Store pays cash for the November 1 purchase. November 7 Dollar Store discovers and returns $200 of defective merchandise purchased on November 1, and paid for on November 5, for a cash refund. November 10 Dollar Store pays $85 cash for transportation costs for the November 1 purchase. November 13 Dollar Store sells merchandise for $1,836 with terms n/30. The cost of the merchandise is $918. November 16 Merchandise is returned to the Dollar Store from the November 13 transaction. The returned items are priced at $210 and cost $105; the items were not damaged and were returned to inventory. Journalize the above merchandising transactions for the Dollar Store assuming it uses a perpetual…arrow_forward
- Exercise 5–2Calculating cost ofgoods sold Determine each of the missing numbers in the following situations:Prepare journal entries to record the following transactions for a retail store:March 2 Purchased merchandise from Alfa Company under the following terms:$1,800 invoice price, 2/15, n/60, FOB factory.3 Paid $125 for shipping charges on the purchase of March 2.4 Returned to Alfa Company unacceptable merchandise that had an invoiceprice of $300.17 Sent a cheque to Alfa Company for the March 2 purchase, net of the discount and the returned merchandise.arrow_forwardExercise 5-7 Recording sales, purchases, shipping, and returns-buyer and seller LO P1, P2 Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. May 11 Sydney accepts delivery of $28,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $19,095. Sydney pays $525 cash to Express Shipping for delivery charges on the merchandise. 12 Sydney returns $1,200 of the $28,500 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $804. 20 Sydney pays Troy for the amount owed. Troy receives the cash immediately. (Both Sydney and Troy use a perpetual inventory system and the gross method.) 1. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.2. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.arrow_forward10.Statement 1 (S1): A markup of 16 2/3% on billed price is equal to a markup of 14 2/7% on cost of merchandise shipped to the branch by the home office.Statement 2 (S2): If the home office bills merchandise shipments to the branch at prices above home office cost, the net income reported to the home office by the branch is overstated from a total company point of view. * A. S1- True; S2- True B. S1- True; S2- False C. S1- False; S2- True D. S1- False; S2- Falsearrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning