Question 1

Sales revenues are earned when cash is collected from the buyer.

Accepted Answer

Sales revenues are recognized when the goods or services are delivered to the buyer, not necessarily when cash is collected, according to the accrual accounting principle.

Question 2

Retailers and wholesalers are both considered merchandisers.

Accepted Answer

Both retailers and wholesalers are involved in the buying and selling of merchandise or products, therefore, they are both considered merchandisers.

Question 3

In a periodic inventory system, cost of goods sold is determined by subtracting the cost of the ending inventory from the cost of goods available for sale.

Accepted Answer

In a periodic inventory system, the cost of goods sold is calculated by subtracting the ending inventory from the cost of goods available for sale, which includes beginning inventory plus purchases.

Question 4

A periodic inventory system requires a detailed inventory record of inventory items.

Accepted Answer

A periodic inventory system does not maintain a day-to-day record of inventory items; it calculates inventory levels at specific intervals, typically at the end of an accounting period.

Question 5

Inventory is classified as a current asset on a classified balance sheet.

Accepted Answer

Inventory is a current asset because it is expected to be sold or used up within a year or operating cycle, whichever is longer. It is therefore listed under current assets on a classified balance sheet.

Question 6

Operating expenses are different for merchandising and service enterprises.

Accepted Answer

The answer of Operating expenses are different for merchandising and...

Question 7

The major difference between the balance sheet of a service company and that of a merchandising company is the presence of inventory.

Accepted Answer

A service company does not have inventory on its balance sheet as it provides intangible services, while a merchandising company sells tangible goods and therefore includes an inventory account on its balance sheet.

Question 8

Sales revenue less cost of goods and operating expenses sold equals gross profit.

Accepted Answer

Gross profit is calculated as sales revenue minus the cost of goods sold (COGS) only, not including operating expenses. Operating expenses are subtracted later to determine operating profit.

Question 9

Walgreens is an example of a merchandising company.

Accepted Answer

Walgreens is primarily a retail pharmacy and health care company that also carries a wide range of merchandise, making it an example of a merchandising company.

Question 10

If a company uses a periodic inventory system, cost of goods sold is determined each time a sale is made.

Accepted Answer

In a periodic inventory system, cost of goods sold is determined at the end of the accounting period through a physical count and calculation, rather than each time a sale is made.

Question 11

Beginning inventory plus goods purchased equals goods available for sale.

Accepted Answer

This is the formula for calculating the goods available for sale in inventory management.

Question 12

Gross profit represents the merchandising profit of a company.

Accepted Answer

Gross profit is defined as the revenue from sales minus the cost of goods sold. It represents the profit a company makes from selling its products or services before accounting for any other expenses such as salaries, rent, or utilities.

Question 13

Sales minus operating expenses equals gross profit.

Accepted Answer

Sales minus cost of goods sold equals gross profit. Operating expenses are then subtracted from gross profit to calculate net profit.

Question 14

Periodic inventory systems provide better control over inventories than perpetual inventory systems.

Accepted Answer

Perpetual inventory systems provide continuous monitoring of inventory levels and are able to easily track inventory movements, providing better control over inventories compared to periodic inventory systems which only update inventory levels periodically.

Question 15

Inventory is reported as a long-term asset on a classified balance sheet.

Accepted Answer

Inventory is reported as a current asset on a classified balance sheet.

Question 16

Two categories of expenses for service companies are cost of goods sold and operating expenses.

Accepted Answer

Service companies do not typically have Cost of Goods Sold (COGS) as they do not produce physical products. Instead, they have operating expenses such as salaries, rent, utilities, and marketing expenses.

Question 17

The operating cycle for a service business is generally longer than that of a merchandising business.

Accepted Answer

The operating cycle for a service business is generally shorter than that of a merchandising business because service businesses do not have to manage inventory.

Question 18

A physical count of inventory is only needed if a periodic inventory system is used.

Accepted Answer

A physical count of inventory may also be needed in a perpetual inventory system to verify the accuracy of inventory records or to spot-check inventory for shrinkage or damage.

Question 19

Sales revenue minus cost of goods sold equals gross profit.

Accepted Answer

This is a basic accounting formula representing the amount of money a company earns from selling goods after deducting the cost of producing those goods.

Question 20

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Accepted Answer

In a perpetual inventory system, the cost of goods sold is continuously updated with each sale, allowing for a more accurate determination of the cost of goods sold.

Quiz 7: Merchandising Companies: Purchases Perpetual