please answer the following question. Accounting 101- Accounting cycle, merchand
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Question
please answer the following question.
Accounting 101- Accounting cycle, merchandise , Inventory & capital stock chapters.
What do closing entries do?
What are dividends?
Which accounts get closed out at year end?
Most large merchandising companies use which type of inventory system? Periodic or perpetual?
What is the operating cycle of a merchandising company?
What are the characteristics of inventory?
How would it be different from another asset, such as equipment, for example?
What is an advantage of using the FIFO method of accounting?
How is a perpetual system different from a periodic system?
What is the par value of stock? Book value? Market value?
What is the concept of double taxation as it relates to corporate earnings?
What is the name given to shares of stock that have been sold and are in the hands of stockholders?
Explanation / Answer
Answer:
What do closing entries do?
The closing entry is used to transfer data in the temporary accounts to the permanent accounts. The purpose of the closing entry is to bring the temporary journal account balances to zero for the next accounting period, which aids in keeping the accounts reconciled.
What are dividends?
Dividends are the part of the net profit that is distributed to the shareholders of the company
Which accounts get closed out at year end?
The temporary accounts gets closed at the year end. The temporary accounts are the income and expenses account.
Most large merchandising companies use which type of inventory system?
They use perpetual inventory system in which the inventory records are continuously updated with each purchase and sale of merchandise.
What is the operating cycle of a merchandising company?
The operating cycle is the repeating sequence of transactions by which a company generates revenue and cash receipts from customers. In a merchandising company, the operating cycle consists of the following transactions: (1) purchases of merchandise, (2) sale of the merchandise and (3) collection of accounts receivable from customers
What are the characteristics of inventory?
Inventory could be of three types: (a) finished goods inventory (b) Raw material inventory and (c) work in process inventory. Inventory is treated as current assets in the balance sheet of the company and is valued at lower of cost or market value. Finished goods inventory are for the purpose of sale, raw material inventory are for the purpose of production and work in process inventory are the inventory in process and not yet transferred to finished goods.
How would it be different from another asset, such as equipment, for example?
Equipments is fixed asset and is used to produce goods and services for the purpose of revenue generation of the company. Inventories are kept either for production of goods or for resale purpose. Equipments are classified as noncurrent assets in the balance sheet, whereas inventories are classified as current assets. The cost of the equipment is amortized in the form of depreciation throughout the useful life of the asset based on some suitable method. Cost of inventory is usually charged as part of the cost of the goods sold.
What is an advantage of using the FIFO method of accounting?
FiFO uses the inventory first arrived and as a result the ending inventory comprises of the last purchases reflecting. By doing this FIFO helps to reduce the obsolescence of inventory.
How is a perpetual system different from a periodic system?
In perpetual system merchandise inventory and cost of goods sold are updated continuously on each sale and purchase transaction. Purchases are directly debited to inventory account whereas for each sale two journal entries are made: one to record sale value of inventory and other to record cost of goods sold. Purchases account is not used in perpetual inventory system.
In periodic system merchandise inventory and cost of goods sold are not updated continuously. Instead purchases are recorded in Purchases account and each sale transaction is recorded via a single journal entry. Thus cost of goods sold account does not exist during the accounting period. It is determined at the end of accounting period via a closing entry.
What is the par value of stock? Book value? Market value?
Par value, also called face value, refers to the stated value of the stock at issuance. Market value, on the other hand, refers to the actual price investors pay for these securities. The par value is determined by the issuing entity and remains unchanged over time, but the market value is highly fluid and is dictated by the market forces and economic scenario of the country or the entire globe. Book value of a share is calculated by dividing the shareholders’ equity by the number of shares outstanding. Book value of a share reflect the net asset backing behind the share.
What is the concept of double taxation as it relates to corporate earnings?
Double taxation means imposition of tax on the same source of income twice. Corporations are regarded as separate entity from their shareholders. The income made by the corporations are taxed . The dividend when paid by the corporation to its shareholders from their net of tax income, those dividends become again taxable in the hands of the shareholders reflecting the fact that same income is being taxed twice.
What is the name given to shares of stock that have been sold and are in the hands of stockholders?
Outstanding shares
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