Required informationSkip to question [The following information applies to the questions displayed below.]The following are the sales transactions of EcoMart Merchandising. EcoMart uses a perpetual inventory system and the gross method. October 1Sold merchandise for $1,500, with credit terms n/30, invoice dated October 1. The cost of the merchandise is $900.October 6The customer in the October 1 sale returned $150 of merchandise for full credit. The merchandise, which had cost $90, is returned to inventory.October 9Sold merchandise for $700 cash. Cost of the merchandise is $450.October 30Received payment for the amount due from the October 1 sale less the return on October 6. Use the above transactions, to analyze each transaction by indicating its effects on the components of the income statement—specifically, identify the accounts and amounts (including + or −) for each transaction. October 30Increase/Decrease Amount Income Statement ComponentsSales (gross)Sales discountsSales returns and allowancesNet salesCost of goods soldGross profitOctober 1Increase/DecreaseAmountOctober 6Increase/DecreaseAmountOctober 9Increase/DecreaseAmount

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following are the sales transactions of EcoMart Merchandising. EcoMart uses a perpetual inventory system and the gross method.

October 1	Sold merchandise for $1,500, with credit terms n/30, invoice dated October 1. The cost of the merchandise is $900.
October 6	The customer in the October 1 sale returned $150 of merchandise for full credit. The merchandise, which had cost $90, is returned to inventory.
October 9	Sold merchandise for $700 cash. Cost of the merchandise is $450.
October 30	Received payment for the amount due from the October 1 sale less the return on October 6.

Use the above transactions, to analyze each transaction by indicating its effects on the components of the income statement—specifically, identify the accounts and amounts (including + or −) for each transaction.

Income Statement Components
Sales (gross)
Sales discounts
Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
October 1
Increase/Decrease
Amount
October 6
Increase/Decrease
Amount
October 9
Increase/Decrease
Amount

Expert Solution

Step 1

The Income statement is part of the financial statements which shows the gross income by taking net revenues (by deducting sales returns and discounts from the gross sales) and declining the cost of goods sold from it. And shows the net income figure for the year by deducting all the other expenses, depreciation, taxes, etc. for the period from the gross income. The income statement shows the profitability position of the company.

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