Following are six false statements related to accounting for merchandising companies. Explain why each is false, including how you

would reword the statement to be correct.

$1.$If a company has a gross profit, it will always have a net income.

$2.$The impact on a company's cash will be the same, regardless of the length of that company's operating cycle.

$3.$Income statements of a service company are generally more complex than those of a merchandising company.

$4.$Inventory purchases first affect the company's income statement, then later move into the company's statement of financial position

$($balance sheet$).$

$5.$A company that purchases inventory should always record those purchases at the total invoice price, then record any cash discount

only when the invoice is actually paid.

$6.$Sales taxes collected by a company are operating expenses in the income statement of the company and a liability on the balance sheet

if not transferred to the appropriate government agency by the end of the accounting period.