Principles of Financial Accounting

In each of the following situations, indicate whether you would expect the business to use a periodic inventory system or a perpetual inventory system. Explain the reasons for your answer.

1) The Frontier Shop is a small retail store that sells boots and Western clothing. The store is operated by the owner, who works full-time in the business, and by one part-time sales clerk. Sales transactions are recorded on an antique cash register. The business uses a manual accounting system, which is maintained by ACE Bookkeeping Service. At the end of each month, an employee of ACE visits the Frontier Shop to update its accounting records, prepare sales tax returns, and perform other necessary accounting services.

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2) Allister’s Corner is an art gallery in the Soho district of New York. All accounting records are maintained manually by the owner, who works in the store on a full-time basis. The store sells three or four paintings each week, at sales prices ranging from about $5,000 to $50,000 per painting.

3) A publicly owned corporation publishes about 200 titles of college-level textbooks. The books are sold to college bookstores throughout the country. Books are distributed to these bookstores from four central warehouses located in California, Texas, Ohio, and Virginia.

4) Toys-4-You operates a national chain of 86 retail toy stores. The company has a state-of-the-art computerized accounting system. All sales transactions are recorded on electronic point-of-sale terminals. These terminals are tied into a central computer system that provides the national headquarters with information about the profitability of each store on a weekly basis.

5) Mr. Jingles is an independently owned and operated ice cream truck.

6) TransComm is a small company that sells very large quantities of a single product. The product is a low-cost spindle of recordable compact disks (CDRs) manufactured by a large Japanese company. Sales are made only in large quantities, primarily to chains of computer stores and large discount stores. This year, the average sales transaction amounted to $14,206 of merchandise. All accounting records are maintained by a full-time employee using commercial accounting software and a personal computer.

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