18RQ - Horngren'S Financial And Managerial Accounting

Question

What is the formula used to determine the amount of merchandise inventory to be purchased?

Step-by-Step Solution

Answer

To calculate the amount of merchandise inventory purchase, you will need the value of beginning and closing inventory and the cost of goods sold.

Step 1: Meaning of Merchandising Company

A merchandising company is a company that purchases goods from outside and then sells them to the customers. Merchandising companies do not manufacture goods.

Step 2: The formula used to calculate the amount of merchandise inventory to be purchased

$\mathrm{Purchases}=\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}+\mathrm{Closing} \mathrm{inventory}-\mathrm{Beginning} \mathrm{inventory}$