Concept explainers
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:
Any other reason for 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 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_forward
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- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningAccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,