Financial Accounting: Tools for Business Decision Making, 7th Edition

CHAPTER 5

MERCHANDISING OPERATIONS AND THE MULTIPLE-STEP INCOME STATEMENT

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify the differences between a service company and a merchandising company.
2. Explain the recording of purchases under a perpetual inventory system.
3. Explain the recording of sales revenues under a perpetual inventory system.
4. Distinguish between a single-step and a multiple-step income statement.
5. Determine cost of goods sold under a periodic system.
6. Explain the factors affecting profitability.
7. Identify a quality of earnings indicator.

Feature Story

BUY NOW, VOTE LATER

Have you ever shopped for outdoor gear at an REI (Recreational Equipment Incorporated) store? If so, you might have been surprised if a salesclerk asked if you were a member. A member? What do you mean a member? You soon realize that REI might not be your typical store. In fact, there's a lot about REI that makes it different.

REI is a consumer cooperative, or “co-op” for short. To figure out what that means, consider this quote from the company's annual report:

As ...