Acc225 Week 5

When a service company reports income revenues minus expenses equals net income; however, a merchandiser takes net sales minus cost of goods sold equals’ gross profit minus expenses which equals net income. The balance sheet of a merchandiser also varies from a service company. Under current assets there is an asset called merchandise inventory, products that a company owns and intends to sell. Since merchandising companies sell products they have inventory that a service company would not have; therefore, they need to have an account that reflects this current asset.

Amy is not being very ethical. Her actions are the same as if she were stealing. She purchases the merchandise because she wants it but she does not want to pay for it. If that company keeps track there returns from individuals she could no longer be allowed to shop at that company and they would no longer allow her to return items. I am not sure if she could face prosecution for her actions. Financially, the company would have to DR its sales returns and allowance for the purchase amount and CR accounts receivable. If the merchandise can be resold then they can DR merchandise inventory and CR cost of goods sold. If the merchandise is no longer able to be resold they would DR merchandise inventory for the value not the cost, DR loss from defective merchandise for the rest of the cost and CR cost of goods sold for the retail value.

QS 5-8A

Identify whether each description best applies to a periodic or a perpetual inventory system.

a. Provides more timely information to managers. (Perpetual)

b. Requires an adjusting entry to record inventory shrinkage. (Periodic)

c. Markedly increased in frequency and popularity in business within the past decade. (Perpetual)

d. Records cost of goods sold each time a sales transaction occurs (Perpetual)

Exercise 5-9

Fill in the blanks in the following separate income statements a through e. Identify any negative amount by putting it in parentheses....