You are now going to add a merchandising component to your business. What related products could you sell? I think that we could sell some clothing merchandise. Sell sweatshirts and hats. This would also help the company out with advertising Give a specific example of how you would calculate your gross profit margin after a month of business. Gross Profit Formula Gross profit margin percentage is found by subtracting the cost of goods sold from the net sales. This number is then divided by net sales, to calculate the gross profit margin in the percentage terms. What type of credit terms would you offer? What kind of terms would you like your vendors to have? The credit terms of most businesses are around 30, 60, or 90 days. many companies' credit terms are dictated by its competitors. This business would offer 30 days Give a specific example of why you would use a Sales Returns and Allowances account. When a customer returns merchandise the seller has to keep track of the return in its accounting records. Sales allowance is a reduction in the amount that the customer owes the seller due to a issue with the order such as a defect . In this situation, the purchaser keeps the item and does not ship it back to the seller. On page 188 of your ebook, you will see an example of a single-step and multiple-step income statement. Solution "a" is a multiple step income statement. Assume solution "a" is your multiple step income statement. Explain line by line what each number represents. Assume you are explaining this to someone who has never taken an accounting class. I cant find this in my book. Assume you have a large amount of inventory. How does this affect your acid test and current ratio? What problems are associated with a large amount of inventory? Inventory makes you more liquid for the current ratio but does not make you more liquid for the acid-test ratio. The current measure depends on how quickly you can sell your stock. If you can quickly get cash for your stock without losing its worth, stock increases your liquidity. Excess inventory is extra space needed for storage. Extra space also means extra costs, and since you have to include those extra costs in your price, you might lose to competition with other sellers because your price is higher. Suppose your business has a 35% gross margin ratio. How can this be interpreted? The Gross Margin Ratio is a profitability ratio. They show how well a company utilizes its assets to produce profit that compares the gross margin of a company to its revenue. ... It shows how much profit a company makes after paying off its Cost of Goods Sold. 35% of gross margin ratio is consider as very good. Explain a situation why inventory shrinkage might happen. Be specific to your business. How would it be handled in your accounting books? Inventory shrinkage is when inventory levels are below the accounting has them recorded as. Estimate the shrinkage loss at the beginning of the period, Designate an expense account to show inventory shrinkage for the estimated loss, Debit the expense account or COGS for the same amount, When losses are determined, debit the reserve account and credit inventory by the loss amount As a business owner, what kind of shipping terms would you offer? Why? How would that be handled in your accounting books? Delivered-at-place. Seller takes on all the risks and costs of shipping goods to a location. The seller is responsible for everything, including packaging, documentation, export approval, loading charges, and ultimate delivery. Now that you are also selling merchandise, how does this affect your closing process to prepare for the next fiscal period? There will be unsold good that show as closing inventory ,and will add to the current asset.

1. Which inventory costing methods do you feel would be the best for the type of merchandise you are selling? Why?
2. Use your answer from question #1 and explain the effects it will have on your company's financial statements.
3. What does Inventory Turnover and Days' Sales of Inventory measure? For your specific product, what types of answers would you like to see for these two ratios?
4. With your specific product, would you expect to use a periodic or perpetual inventory costing system? Why?
5. Identify all the items that make up your inventory.
6. Explain all the costs associated with acquiring your merchandise inventory.
7. Explain how the Lower of Cost or Market Rule (LCM) would apply to your specific business.
8. How does The Consistency Principle apply to your inventory costing methods?
9. Which inventory costing method is ideal for tax purposes? Why?
10. Why might you need to estimate the value of your inventory? Explain one way to do it.