Question

A retailer’s main line of business is selling goods.

On March 31, the company records in its books that employees directly involved in selling the goods earned $150 during the January - March period. The company pays the January and February salaries (a total of $100) on March 31, and will pay the March salary during April.

Does this transaction affect cost of goods of sold of this retailer?

Answer 1

Solution: This transaction does not affect cost of goods of sold of this retailer

Reason:

1) Cost of goods includes material purchase ,freight paid and any value addition made by retailer.

2) Even the retailer main line of business is selling goods and employees directly involved in selling the goods but cost of goods includes only those costs which were incurred till the goods are in retailer`s place.

3) Employees salary is not an value addition.

4) We have to take salaries under Marketing expenses rather than cost of goods.