Question

Which of the following equations correctly identify the cost flow of a merchandising company? a) Net purchases minus beginning inventory equals merchandise available for sale b) Net purchases plus cost of goods sold equals merchandise available for sale c) Net purchases plus beginning inventory equals merchandise available for sale d) Beginning inventory plus cost of goods sold equals merchandise available for sale.

Answer 1

Answer:

The answer is: C) Net purchases plus beginning inventory equals merchandise available for sale

Explanation:

The best way to show how this equation works is by assigning values to the accounts;

• initial merchandise inventory was 2,000 units, at $10 per unit, total $20,000
• merchandise purchased was 4,000 units, at $10 per unit, total $40,000

How many units do we have available for sale, and at what cost?

We add initial merchandise inventory and merchandise purchased = 6,000 units at $10 per unit, total $60,000