Question

EXERCISE 6.2

Effects of Basic Merchandising Transactions

Shown as follows are selected transactions of Konshock’s, a retail store that uses a perpetual inventory system.

1. Purchased merchandise on account.

2. Recognized the revenue from a sale of merchandise on account. (Ignore the related cost of goods sold.)

3. Recognized the cost of goods sold relating to the sale in transaction b.

4. Collected in cash the account receivable from the customer in transaction b.

5. Following the taking of a physical inventory at year-end, made an adjusting entry to record a normal amount of inventory shrinkage.

Indicate the effects of each of these transactions on the elements of the company’s financial statements shown. Organize your answer in tabular form, using the column headings given. (Notice that the cost of goods sold is shown separately from all other expenses.) Use the code letters I for increase, D for decrease, and NE for no effect.

INCOME STATEMENT

EXERCISE 6.2

Effects of Basic Merchandising Transactions

Shown as follows are selected transactions of Konshock’s, a retail store that uses a perpetual inventory system.

1. Purchased merchandise on account.

2. Recognized the revenue from a sale of merchandise on account. (Ignore the related cost of goods sold.)

3. Recognized the cost of goods sold relating to the sale in transaction b.

4. Collected in cash the account receivable from the customer in transaction b.

5. Following the taking of a physical inventory at year-end, made an adjusting entry to record a normal amount of inventory shrinkage.

Indicate the effects of each of these transactions on the elements of the company’s financial statements shown. Organize your answer in tabular form, using the column headings given. (Notice that the cost of goods sold is shown separately from all other expenses.) Use the code letters I for increase, D for decrease, and NE for no effect.

INCOME STATEMENT BALANCE SHEET

TRANSACTION NET SALES / COST OF GOODS SOLD / ALL OTHER EXPENSES/ = NET INCOME/ assets=liabilities+ owners equity

A   

Answer 1