Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Which of the following formulas correctly computes the company's total cost of merchandise purchased for the year under both perpetual and periodic inventory systems?

Net Purchases = Sales - Cost of Goods Sold

Net Purchases = Beginning Inventory + Purchases - Ending Inventory

Net Purchases = Purchases - Freight-In + Purchase Discounts

Net Purchases = Purchases + Freight-In - Purchase Returns and Allowances - Purchase Discounts

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Verified step by step guidance

Step 1: Understand the concept of 'Net Purchases'. Net Purchases represent the total cost of merchandise acquired by a company during a specific period, adjusted for any reductions such as purchase returns, allowances, and discounts.

Step 2: Analyze the components of the formula provided in the problem. The correct formula for Net Purchases is: Net Purchases = Purchases + Freight-In - Purchase Returns and Allowances - Purchase Discounts.

Step 3: Break down each term in the formula: 'Purchases' refers to the total cost of goods bought, 'Freight-In' includes transportation costs paid by the buyer to bring goods to their location, 'Purchase Returns and Allowances' are reductions in cost due to returned goods or allowances for defective merchandise, and 'Purchase Discounts' are reductions in cost due to early payment or other incentives.

Step 4: Compare the correct formula to the other options provided in the problem. For example, the formula 'Net Purchases = Sales - Cost of Goods Sold' is incorrect because it relates to sales activity, not purchases. Similarly, 'Net Purchases = Beginning Inventory + Purchases - Ending Inventory' is incorrect because it calculates inventory changes, not net purchases. Lastly, 'Net Purchases = Purchases - Freight-In + Purchase Discounts' is incorrect because it excludes Freight-In and misplaces Purchase Discounts.

Step 5: Conclude that the correct formula for computing Net Purchases under both perpetual and periodic inventory systems is: Net Purchases = Purchases + Freight-In - Purchase Returns and Allowances - Purchase Discounts. This formula accounts for all relevant adjustments to the cost of merchandise purchased.