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Chapter 5: Q5-3RQ (page 294)

Describe the operating cycle of a merchandiser.

Short Answer

Expert verified

The term operating cycle of a merchandiser refers to the process which includes the purchase of inventory, sale of the same, and collection of cash.

Step by step solution

01

Meaning of Operating Cycle

The term operating cycle refers to the average time required for a business entity to purchase inventory and sell such inventories to generate cash for the smooth functioning of the business.

02

Operating cycle of a merchandiser

The operating cycle of a merchandiser passes through three major stages:

  1. The first stage of the operating cycle includes the purchase of inventory from the vendor.
  1. In the second stage, the company resells the purchased merchandise.
  2. In the final stage, it collects cash from the customers against the goods sold to them.

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Most popular questions from this chapter

Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae鈥檚 brother started his own drilling company and persuaded Rae to 鈥渓oan鈥� him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well encountered problems and the pipe was still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. 鈥淪end me over 80 joints of 5-inch pipe tomorrow, and I鈥檒l get them back to you ASAP,鈥� said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a 鈥渘o-exception鈥� report.

Requirements

1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?

2. How would this kind of action affect the financial performance of the company?

What would the credit terms of 鈥�2/10, n/EOM鈥� mean?

Describe the journal entry(ies) when recording a sale of inventory using the periodic inventory system.

Describe the multi-step income statement.

When granting a sales allowance is there a return of merchandise inventory from the customer? Describe the journal entry(ies) that would be recorded.
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