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
- Assume you are considering opening a retail business. You are trying to decide whether to have a traditional brick-and-mortar store or to sell only online. Explain how the activities and costs differ between these two retail arrangements.arrow_forwardQuestion 13 A customer returns $690 worth of merchandise and receives a full refund. What accounts recognize this sales return, assuming the customer has not yet remitted payment to the retailer? O accounts receivable, sales returns and allowances O accounts receivable, cash O sales returns and allowances, purchases O sales discounts, cost of goods soldarrow_forwardQuestion 5 The General Ledger entry when Goods Issued is posted is DB: Cost of Goods Sold: CR: Inventory DB:Cost of Good Sold; CR Sales Revenue DB: Inventory, CR: Cost of Goods Sold DB: Sales Revenue, CR:Inventory Question 6 (1 If the wrong item is entered into a sales order, when will the mistake be caught? none of the answers when the warehouse ships the order when accounts receivable sends the invoice when the order is received by customerarrow_forward
- You have decided to open up a small convenience store in your hometown. As part of the initial set-up process, you need to determine whether to use a perpetual inventory system or a periodic inventory system. Write an evaluation paper comparing the perpetual and periodic inventory systems. Describe the benefits and challenges of each system as it relates to your industry and to your business size. Compare at least one example transaction using the perpetual and periodic inventory systems (a purchase transaction, for example). Research and describe the impact each system has on your financial statements. Decide which system would be the best fit for your business, and support your decision with research.arrow_forwardTerminology Match each phrase with its definition. A. Sales discount B. Credit period C. Discount period D. FOB destination E. FOB shipping point F. Gross profit G. Merchandise inventory H. Purchases discount 1. 2. 3. 4. 5. 6. 7. 8. Goods a company owns and expects to see to its customers. Time period that can pass before a customer's full payment is due. Seller's description of a cash discount granted to buyers in return for early payment. Ownership of goods is transferred when the seller delivers goods to the carrier. Purchaser's description of a cash discount received from a supplier of goods. Difference between net sales and the cost of goods sold. Time period in which a cash discount is available. Ownership of goods is transferred when delivered to the buyer's place of business. 1arrow_forward16) Name the special journal which is used to record the credit sales transactions of a merchandising business? a. Purchases daybook b. General journal c. Cash payments book d. Sales daybook Clear my choicearrow_forward
- Multiple choice 1. Copies of sales invoice are used to do all of the following except A. Ship the merchandise B. Bill the costumer C. Record the sale D. Record the receipt of merchandisearrow_forwardEnter the letter for each term in the blank space beside the definition that it most closely matches. A. Sales discount D. FOB destination G. Merchandise inventory B. Credit period E. FOB shipping point H. Purchases discount C. Discount period F. Gross profit 1. Goods a company owns and expects to sell to its customers. 2. Time period that can pass before a customer’s full payment is due. 3. Seller’s description of a cash discount granted to buyers in return for early payment. 4. Ownership of goods is transferred when the seller delivers goods to the carrier. 5. Purchaser’s description of a cash discount received from a supplier of goods. 6. Difference between net sales and the cost of goods sold. 7. Time period in which a cash discount is available. 8. Ownership of goods is transferred when delivered to the buyer’s place of business.arrow_forwardProblem 1. - Expenditure Cycle Walker Books, Inc. (Manual System withMinimal PC Support) Purchases System The purchases process begins with the purchasing agent, who monitors the levels of books available via a computer terminal listing current inventory. Upon noticing deficiencies in inventory levels, the agent manually generates four hard copies of a purchase order: one is sent to accounts payable, one is sent to the vendor, one is sent to the receiving department, and the last is filed within the department. Vendors will generally ship the products within five business days of the order. When goods arrive in the receiving department, the corresponding packing slip always accompanies them. The receiving department clerk unloads the goods and then reconciles the packing slip with the purchase order. After unloading the goods, the clerk manually prepares three hard copies of the receiving report. One copy goes with the goods to the warehouse, another is sent to the purchasing…arrow_forward
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