The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale?
Purchase returns.
Sales returns.
Net markups.
Freight in.
Answer
Purchase returns.
You Answered Correctly!
The retail method measures beginning inventory and net purchases at both cost and retail. It then applies the average relationship between cost and retail (based on beginning inventory and purchases) to ending inventory at retail to determine ending inventory at cost.
Purchase returns reduce net purchases at both cost and retail because returns represent amounts included in gross purchases that are not available for sale.
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