Explain the components for determining the cost of goods sold for a merchandising concern.(5 marks)

1. Beginning Inventory: This is the value of the goods that are available for sale at the start of the accounting period. It is calculated by adding the cost of inventory at the end of the previous period to the cost of goods purchased during the current period.

2. Purchases: These are the goods that are bought during the accounting period for the purpose of resale. It includes both cash and credit purchases. The cost of these purchases is added to the beginning inventory to determine the total cost of goods available for sale.

3. Freight-In: This is the cost of transporting the goods from the suppliers to the business. It is considered a part of the cost of purchases and is added to the total cost of goods available for sale.

4. Purchase Returns and Allowances: These are the reductions in the cost of purchases due to goods being returned to the supplier or allowances given by the supplier for damaged goods. This amount is subtracted from the total cost of goods available for sale.

5. Ending Inventory: This is the value of the goods that are still available for sale at the end of the accounting period. It is subtracted from the total cost of goods available for sale to determine the cost of goods sold.

So, the formula for calculating the cost of goods sold is:

Beginning Inventory + Purchases + Freight-In - Purchase Returns and Allowances - Ending Inventory = Cost of Goods Sold.