Principles of Accounting: Chapter Five

Home

Chapter 5 examines topics that customarily arise in the process of buying and reselling goods. Merchandising businesses will encounter issues related to sales on credit, returns and allowances, various types of discounts, and freight costs. Similar issues relate to the purchasing cycle. The purchasing cycle also entails consideration of the effects of beginning and ending inventory balances, and gives rise to calculations and reporting of cost of goods sold and gross profit.

The new accounts introduced in this chapter complicate the accounting cycle's closing process, and these issues are carefully illustrated. An alternative perpetual inventory system is also introduced.

The income statement for a merchandiser rises in complexity, and this chapter shows both the multiple-step and single-step income statements. Each has advantages, and related ratios may be derived from the statements that are useful in analysis of business profitability. The chapter closes with a discussion of the importance of a properly designed control structure, and its key features.

Exercises

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

Click here to go to Bookboon.

Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Problems: Chapter Five

Obtain the entire Current Assets Problem Workbook via the linked image at left. Our high volume production process makes this an economical option as compared to printing these files on your own printer!



Basic		Problem	Worksheet	Combined	Objective

	B-5.01				Sales, returns and allowances

	B-5.02				Sales discounts

	B-5.03				Purchase transactions, business papers, net vs. gross

	B-5.04				Sales and freight cost

	B-5.05				Purchases and freight cost

	B-5.06				Calculating values for a merchandising income statement

	B-5.07				Preparing a merchandising income statement

	B-5.08				Closing entries

	B-5.09				Perpetual inventory

	B-5.10				Single-step and multiple-step income statements

	B-5.11				Profit margin analysis

	B-5.12				Control structure



Involved		Problem	Worksheet	Combined	Objective

	I-5.01				Comprehensive merchandising entries

	I-5.02				Gross vs. net recording of purchases, entries and reporting

	I-5.03				Merchandising income statement and closing

	I-5.04				Perpetual inventory vs. periodic inventory

	I-5.05				Single-step and multiple-step income statements, profit margins

	I-5.06				Team-based study of controls

The preceding table includes links to "Basic" and "Involved" problems. Each link will download the file containing a spreadsheet for the problem and a template worksheet on which you can prepare the solution electronically. If you see a light bulb icon on a worksheet, just mouse over above the icon and a comment box will appear. The comments include useful suggestions for improving your spreadsheet skills.

Solutions to these problems may be obtained from your instructor, however you may not post or redistribute, electronically or otherwise, any such solution material. Solution material may be provided to you for your sole use only, at the discretion of your individual instructor. Violation of this policy constitutes a copyright violation. Alternative problems, with solutions, may be found under the "Exercises" tab within each chapter. Video solutions to selected problems are available to students enrolling in the online course.