ACCT 1110 CH.

5 & 6 TEST REVIEW LIST

Bring a no. 2 pencil and a calculator this test is all true/false and multiple choice and you
cannot use your cell phone as a calculator and you wont be on the computer to take this test.
Ch. 5 Review Topics
Know the operating cycle of a merchandising business
Know how the income statement and balance sheet for a merchandising business
compares to those for a service business know the new accounts that a merchandising
business uses that a service business doesnt use
Know the difference between perpetual inventory and periodic inventory and when each is
used (also know what GAAP standard accounting dictates regarding perpetual inventory
know the digital and electronic devices which make a perpetual inventory possible)
Know how purchases of merchandise are recorded review the journal entries for a
merchandising business when they buy inventory pages 249-254
Know how sales of merchandise are recorded, along with the perpetual inventory journal
entry review the journal entries for selling merchandise and recording the expense, Cost
of Goods Sold and reduction of inventory after a sale, and the other journals entries pages
253-259.
Know why a merchandisers multi-step income statement (page 265) has Gross Profit
rather than just having all expenses lumped in together as on a single-step income
statement (page 265). Know the adjusting and closing entries you might have to make for
a merchandising business, pages 261-263.
Know how to calculate the Gross Profit Percentage and how to interpret it (pages 267-268).
Review vocabulary terms on page 288.
Ch. 6 Review Topics
Know the 4 accounting principles discussed on pages 323-324 and how they relate to
merchandising businesses.
Know how to use the 4 methods for calculating cost of goods sold and ending inventory:
Specific Identification, FIFO, LIFO, Weighted Average (pages 327-333). Know which is GAAP
accepted (all are) and which is GAAP preferred (Specific Identification).
Know how the results differ based on the method (see yellow chart, page 335) whether or
not you can change frequently (no) and whether or not you are ever allowed to change
methods (yes, but all figures for both methods must be reported and explained the year of
the change).
Know the effects on the balance sheet (top of page 336) and the effects on the income
statement formula in both periods of rising costs and declining costs of inventory (bottom
of page 336).
Know what the Lower-of-Cost-or-Market rule is regarding inventory and why you may
have to do an adjusting entry to reduce the value of ending inventory because of this rule
(page 337). Know what the real value of inventory is that should be reported because of
this rule (page 338).
Know the effects or inventory errors on the financial statements (page 339-340).
Know the formulas for the stats discussed on pages 341-342: Inventory Turnover and
Days Sales in Inventory and know how they are interpreted and what they mean.
Review vocabulary terms on the bottom of page 351.