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Chapter 5

ADM 1340 Chapter Notes - Chapter 5: Cash Conversion Cycle, Accounts Receivable

Course Code
ADM 1340
Lamia Chourou

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- Merchandising involves purchasing products to resell to customers
merchandising companies that purchase and sell directly to consumers
 merchandising companies that sell to retailers
 companies that produce goods for sale to wholesalers (or others)
 the time it takes to go from cash to cash in producing revenues
- Merchandising company purchases inventory on credit, which increases
accounts receivable
- The company then sells that inventory on credit, which increases accounts
 the amount of time between the outlay of cash and the
collection of cash
- Short conversion cycles increase liquidity
- Costs of good sold
- Operating expenses
 = total cost of merchandise that was sold at the beginning of the
 = sales revenue – the cost of goods sold
 expenses that are incurred in the process of earning sales
*Review 5-2 diagram
- Ending inventory is recorded as merchandise inventory
- Cost of good sold is an 
 !" detailed records are maintained for the cost of each
product that is purchased and sold – show the quantity and cost of the inventory
purchased, sold, and on hand
- Quantity and cost are recorded each time a sale occurs
 DEBIT COGS and CREDIT merchandise inventory
 !"records merchandise on hand that are not kept
throughout the period
- COGS is determined at the end of the period
 Cost of goods on hand at the end of the accounting period from
the physical inventory count – cost of goods available for sale
#$% the seller is responsible for delivering the goods to the
#$! the buyer is responsible for the freight costs from
the shipping point to the buyer’s destination
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