Chapter 5, Problem 5.1KTQ

Merchandise Accounting

Merchandise Inventory

Raw materials

Work in process

Finished goods

Gross profit

Net sales

Sales revenue

Cost of goods available for sale

Cost of goods sold

Perpetual system

Periodic system

Transportation-In

Purchases

FOB destination point

FOB shipping point

Gross profit ratio

1. An adjunct account used to record freight costs paid by the buyer.
2. A system in which the Inventory account is increased at the time of each purchase and decreased at the time of each sale.
3. Terms that require the seller to pay for the cost of shipping the merchandise to the buyer.
4. Terms that require the buyer to pay for the shipping costs.
5. A system in which the Inventory account is updated only at the end of the period.
6. Beginning inventory plus cost of goods purchased.
7. An account used in a periodic inventory system to record acquisitions of merchandise.
8. Sales revenue less sales returns and allowances and sales discounts.
9. Cost of goods available for sale minus ending inventory.
10. Gross profit divided by net sales.
11. Net sales less cost of goods sold.
12. The cost of unfinished products in a manufacturing company.
13. The account wholesalers and retailers use to report inventory held for sale.
14. The inventory of a manufacturer before the addition of any direct labor or manufacturing overhead.
15. A manufacturer’s inventory that is complete and ready for sale.
16. A representation of the inflow of assets from the sale of a product.

To determine

Introduction: Products that the wholesaler, retailer, or distributor purchases from suppliers to resell to customers are referred to as merchandise inventory. The accountant adds the cost of the inventory to the cost of goods sold if the business can sell the inventory.

To match: The statements with their proper terminology.

Answer to Problem 5.1KTQ

The statements that match with terminology are as given below:

1	Transportation -In
2	Perpetual system
3	FOB Destination point
4	FOB shipping point
5	Periodic system
6	Cost of Goods Available for sale
7	Purchases
8	Net sales
9	Cost of goods sold
10	Gross profit ratio
11	Gross profit
12	Work in process
13	Merchandise inventory
14	Raw Materials
15	Finished Goods
16	Sales revenue

Explanation of Solution

1. "Transportation-In" is used to track freight expenses that the customer has paid.
2. The Inventory account is increased at the time of each purchase and decreased at the time of each sale in a perpetual system.
3. According to the FOB Destination point, the seller must cover the cost of transporting the goods to the buyer.
4. The buyer is responsible for covering the cost of shipment according to the FOB shipping point.
5. The systems that only update the Inventory account at the end of each period are referred to as periodic systems.
6. Cost of Products Available for Sale (COGS) is the sum of initial inventory and the cost of goods purchased.
7. Under the periodic inventory systems, the purchase account is used to track product purchases.
8. Net sales are defined as sales income with fewer allowances, refunds, and discounts.
9. The cost of goods sold is calculated as the cost of products offered for sale less any remaining inventory.
10. In order to determine the gross profit ratio, the gross profit is required to be divided by the net sales.
11. Gross profit is calculated by subtracting the cost of products sold from the net sales.
12. In a manufacturing company, the cost of unfinished goods is known as work in the process
13. Merchandise inventory is the account that is used by wholesalers and retailers to report inventory held for sale.
14. The inventory of a manufacturer before the inclusion of any direct labor or manufacturing overhead is referred to as raw materials.
15. The manufacturer's inventory is referred to as finished items if it is complete and offered for sale.
16. The accounting of the asset inflow from the sale of a product is referred to as sales revenue.