The following learning objectives for this chapter map to the curriculum design for our online university-level courses. These courses are offered through Utah State University, and result in the awarding of up to 6 hours of highly transferrable college credit. To learn more, check out the classroom link.

 

Merchandising businesses and related sales recognition issues.

Define gross profit, and understand why it is separately calculated and presented.

Know that only sales of merchandise are included in the Sales account.

How might sales returns and allowances be presented on an income statement?

Define the term "contra revenue."

What is a credit memorandum?

Distinguish between list price and invoice price, and note the term "trade discount."

Are trade discounts entered in the accounting records?

Understand the basic mechanics of credit card sales.

Know the normal method (e.g., 2/10, n/30) for expressing a cash discount.

What is an invoice?

How should one account for cash discounts on sales?

 

Purchase recognition issues for the merchandising business.

Distinguish between a periodic and perpetual approach to managing inventories.

Understand a Purchases account, and the allocation of purchases to inventory and cost of goods sold.

When would a debit memorandum be issued?

How are purchase returns and allowances recorded?

Develop an appreciation for the economic value of cash discounts.

Distinguish between gross and net methods, and how purchase discounts are reported under each.

Carefully review freight-related terminology, and describe who must pay and bear the cost of freight.

Fully comprehend the calculation of net purchases.

What three key amounts enter into the computation of cost of goods sold, and how?

How are purchase returns and allowances and purchases discounts presented on the income statement?

Have a deep awareness of the form and content of a detailed income statement.

Be able to prepare closing entries for a merchandising concern.

 

An alternative inventory system: The perpetual method.

What is the difference between a periodic and perpetual inventory system?

Be able to prepare basic entries under a perpetual inventory system.

 

Enhancements of the income statement.

Note the many important differences between the single- and multiple-step income statements.

Be able to calculate profit margin ratios from an income statement.

Be aware of differences in global income reporting approaches.

 

The control structure.

Understand the concept and importance of a control structure.

Be able to enumerate control features of a well-designed business organization.

What controls are unique to the retail environment?

What controls are unique to the purchasing cycle?