In the Income Statement 'By Function' of a Retailer,the Cost

question 6

Multiple Choice

In the income statement 'by function' of a retailer,the cost of goods sold is the equivalent of:

• A) Purchases plus average inventory .
• B) Goods available for sale minus ending inventory.
• C) Purchases minus beginning inventory plus ending inventory.
• D) Ending inventory plus purchases of new merchandise minus beginning inventory.

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Definitions:

Gross Profit Method

A technique used for estimating inventory and cost of goods sold, calculated by applying a gross profit percentage to sales.

Retail Inventory Method

An accounting method used by retailers to estimate inventory value by converting retail prices to cost prices.

Perpetual Inventory

A system of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

Non-Cancellable Fixed Purchase Contract

A legally binding agreement to buy a specific quantity of goods or services at predetermined prices, where the contract cannot be cancelled without a breach.