ACC 250 · Introduction to Financial Accounting
Seven questions on inventory, the perpetual system, payment terms and the multi-step income statement,
then the lecture’s Walmart bike transactions to record, and what they add up to.
Fall 2026
Inventory vs supplies
A sporting goods store buys tennis rackets to resell to customers and printer paper for its own office. Which statement is correct?
A. Both are current assets bought from suppliers, and they differ only in what turns them into an expense. Inventory is goods bought but not yet sold, so the rackets become Cost of Goods Sold when a customer buys them. Supplies are goods bought but not yet used, so the paper becomes Supplies Expense as the office uses it.
Perpetual inventory system
Under the perpetual inventory system, which statement is correct?
E. The perpetual system updates Inventory with every purchase, return and sale, and records Cost of Goods Sold at each sale, so both balances are known at every moment. A describes the periodic system, where Cost of Goods Sold is inferred from the inventory equation after the count.
Inventory equation
A shop that counts its inventory at the end of each month began June with $4,000 of inventory, bought $15,000 more during June, and counted $3,000 on hand at the end of June. What was its Cost of Goods Sold for June?
C. Goods available for sale are $4,000 + $15,000 = $19,000. Whatever is not still on the shelf was sold: $19,000 − $3,000 = $16,000. $19,000 (D) forgets to take out the ending inventory.
Payment terms · 2/10, n/30
On March 3 a company bought $8,000 of inventory on account with terms 2/10, n/30. It paid the invoice on March 11. How much cash did it pay?
B. 2/10 means a 2% discount for paying within 10 days, and March 11 is 8 days after the purchase, so it qualifies: $8,000 × 98% = $7,840. Paying after March 13 would have cost the full $8,000 (D), due by day 30.
Single-step vs multi-step
A company prepares both a single-step and a multi-step income statement for the same year. Which amount appears, and is the same, on both?
D. The two formats list the same revenues and expenses and arrive at the same Net Income. What the multi-step statement adds is the subtotals on the way down, Gross Profit, Income from Operations and Income before Income Tax, none of which a single-step statement shows.
Gross profit
Pinecone Goods reported Net Sales of $60,000, Cost of Goods Sold of $36,000, and SG&A expenses of $14,000. What is its gross profit?
B. Gross profit is Net Sales less Cost of Goods Sold: $60,000 − $36,000 = $24,000. SG&A is subtracted only below gross profit; taking it out as well gives $10,000 (A), income from operations.
Gross profit ratio
A retailer reported Net Sales of $80,000, gross profit of $28,000 and net income of $8,000. What is its gross profit ratio?
C. Gross profit ratio = Gross Profit ÷ Net Sales = $28,000 ÷ $80,000 = 35%: for every $1 of sales, 35 cents is left after the cost of the goods sold. Net income ÷ Net Sales, 10% (A), is the net profit ratio.
Questions 8–12 · The accounts
Write the number of the account that belongs on each line of the journal entry. Every entry draws on the ten accounts below, and an account may be used more than once, or not at all.
Q8 · Transaction A — Bikes bought on account
Transaction A. Walmart received $10,500 of bikes it bought from a supplier on account. Record transaction A.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 5. Inventory (+A) | 10,500 | |
| 1. Accounts Payable (+L) | 10,500 |
5, then 1. The bikes are goods bought to resell and not yet sold, so they go into Inventory, an asset, at their cost. Nothing is paid yet, so Accounts Payable records what is owed. No expense: nothing has been sold.
Q9 · Transaction B — Paid for delivery
Transaction B. Walmart paid a trucking company $200 cash to deliver those bikes to its store. Record transaction B.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 5. Inventory (+A) | 200 | |
| 3. Cash (−A) | 200 |
5, then 3. Under the cost principle, the cost of getting goods to the store is part of what they cost, so the $200 is added to Inventory. Transportation Expense (10) is the trap: the freight becomes an expense only later, inside Cost of Goods Sold, when the bikes are sold.
Q10 · Transaction C — Bikes returned
Transaction C. Walmart returned some of the bikes to the supplier, which reduced the amount Walmart owes by $500. Record transaction C.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 1. Accounts Payable (−L) | 500 | |
| 5. Inventory (−A) | 500 |
1, then 5. The returned bikes leave the store, so Inventory goes down, and the supplier cuts the bill, so Accounts Payable goes down by the same $500. No cash moves.
Q11 · Transaction D — Sale — the revenue
Transaction D. Walmart sold four mountain bikes for $200 each, $800 in total, and the customers paid cash. Walmart had recorded these bikes in Inventory at $175 each, a total cost of $700. Record the selling price of transaction D.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 3. Cash (+A) | 800 | |
| 7. Sales Revenue (+R, +SHE) | 800 |
3, then 7. The bikes were delivered and the customers paid, so Cash goes up and Sales Revenue is recorded at the $800 selling price. This is the first of the two entries a sale needs.
Q12 · Transaction D — Sale — the cost
Transaction D. Walmart sold four mountain bikes for $200 each, $800 in total, and the customers paid cash. Walmart had recorded these bikes in Inventory at $175 each, a total cost of $700. Record the cost of the bikes sold in transaction D.
Account choices
| Account | Debit | Credit |
|---|---|---|
| 4. Cost of Goods Sold (+E, −SHE) | 700 | |
| 5. Inventory (−A) | 700 |
4, then 5. The bikes that left the store cost $700, so Inventory goes down by their cost and the same amount becomes Cost of Goods Sold, matched to the $800 of revenue it helped earn. The entry uses cost, not the selling price.
Q13 · Inventory after the four transactions
What is Walmart’s Inventory balance for bikes after transactions A to D?
The four transactions
Inventory — ending balance
Amount: $9500
$9,500. Inventory went up by A’s $10,500 and B’s $200 of delivery, and down by C’s $500 return and the $700 cost of the bikes sold in D: $10,500 + $200 − $500 − $700 = $9,500, a debit balance.
Q14 · Gross profit
What is Walmart’s gross profit from transactions A to D?
The four transactions
Gross profit
Amount: $100
$100. Net Sales are D’s $800, and Cost of Goods Sold is the $700 the sold bikes cost: $800 − $700 = $100. The $200 of delivery is not subtracted again; it sits in the cost of the bikes, sold or unsold.
Inventory is goods bought but not yet sold; when it is sold, its cost becomes Cost of Goods Sold.
Under the perpetual system every purchase, transportation cost and return updates Inventory, and every sale records Cost of Goods Sold.
Gross profit is Net Sales less Cost of Goods Sold; the gross profit ratio divides it by Net Sales.