Introduction to Inventories and the Classified Income Statement

Read this chapter and pay attention to the comparison of the two income statements. This chapter reviews the difference in reporting and financial presentation of information for service and merchandising operations and compares recording inventories for two separate types of businesses.

Learning objective

After studying this chapter, you should be able to:

  • Record journal entries for sales transactions involving merchandise.
  • Describe briefly cost of goods sold and the distinction between perpetual and periodic inventory procedures.
  • Record journal entries for purchase transactions involving merchandise.
  • Describe the freight terms and record transportation costs.
  • Determine cost of goods sold.
  • Prepare a classified income statement.
  • Analyze and use the financial results - gross margin percentage.
  • Prepare a work sheet and closing entries for a merchandising company (Appendix).

Source: Textbook Equity,
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