Assuming a Retailer Buys and Sells on 30 Days Credit

question 64

Multiple Choice

Assuming a retailer buys and sells on 30 days credit and from the date of purchase it takes, on average, 14 days to sell inventory. What is the correct order for the steps in the operating cycle?
I Sell goods to customer
II Collect cash from customer
III Pay supplier
IV Buy goods for resale from supplier

• A) I, II, III, IV
• B) IV, III, II, I
• C) IV, I, III, II
• D) I, IV, II, III

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Definitions:

Percentage-Of-Completion Method

An accounting method that recognizes revenue and expenses of long-term contracts as a percentage of work completed during the period.

Completed-Contract Method

This is an accounting method that recognizes revenues and expenses from a long-term contract only when the contract is completed.

Deferred Tax Liability

A tax obligation that is recorded on the balance sheet but not yet due, arising from temporary differences between the accounting and tax treatment of transactions.

Temporary Differences

Differences between the tax base of an asset or liability and its carrying amount in the financial statements, which will result in taxable or deductible amounts in the future.