PAIL ASSIGNMENT- Chapter 5 Explain the primary difference between the perpetual
ID: 2521182 • Letter: P
Question
PAIL ASSIGNMENT- Chapter 5 Explain the primary difference between the perpetual inventory system and the periodic inventory system and the potential benefits of a perpetual inventory system. 1. Explain the income measurement process in a merchandising company. How does income measurement differ between a merchandising company and a service company? 2. A credit sale is made on July 10 for $900, terms 1/15, n/30. On July 12, the purchaser returns $100 of goods for credit. Give the journal entry on July 19 to record the receipt of the balance due within the discount period. 3. Scribe Company reports net sales of $800,000, gross profit of $560,000, and net income of $230,000. What are its operating expenses? 4. Why is the normal operating cycle for a merchandising company likely to be longer than for a service company? 5. 6. What types of businesses are most likely to use a perpetual inventory system?Explanation / Answer
1).
POTENTIAL BENEFITS OF PERPECTUAL INVENTORY SYSTEM:
2).
Sales Revenue - Cost of Goods Sold = Gross Profit - Operating Expenses = Net Income
(a) sales are the primary source of revenue and
(b) expenses are divided into two main categories: cost of goods sold and operating expenses.
3). Credit Sale with Discount
Dr Sales Discount 8
Cash 792
Cr Accounts receivable 800
4).
Here is how it look like;
Sales Revenues $XXXX $800,000
Less Cost of Goods Sold ($XXXX) $240,000 (in this case, difference between GP and sales)
Equal Gross Profit $XXXX $ 560,000
Less Operating Expenses ($XXXX) $ 330,000 (Difference between GP and net profit)
Equal Net Profit $XXXX $230,000
or simply Gross profit $560,000
Less: Net income. $230,000
Operating expenses. $330,000
5). The normal operating cycle for a merchandising company is likely to be longer than in a service company because inventory must first be purchased and sold, and then the receivables must be collected.
6). Companies like Car dealerships, Automobiles and other companies dealing with various products with large outlet.
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