Ch. 4 Accounting

With a perpetual inventory system, the inventory account is increased...and decreased when...

1. for purchases of inventory 2. when inventory is sold

in a periodic inventory system

A purchases account is debited when inventory is purchased.

A company using a perpetual inventory system recorded cost of inventory sold for $2,500. The effect of this event on the company's accounting equation is

Assets and equity decrease

A company that uses a perpetual inventory system purchased $21,000 of inventory on account. The effect of this transaction on the company's accounting equation is

Assets and liabilities increase.

What is decreased by the amount of a loss?

Assets, Net Income, Equity

When a company's physical count of inventory is $2,525 less than the amount in its inventory records:

Cost of goods sold is debited $2,525 and inventory is credited $2,525

In a perpetual inventory system, the journal entry to record the payment of inventory previously purchased on account will:

Debit accounts payable and credit cash

The journal entry to record the cash purchase of inventory in a perpetual inventory system will

Debit inventory and credit cash

In a perpetual inventory system for purchases of inventory, inventory is..

Increased

Annika Company which uses a perpetual inventory system purchased $40,000 of merchandise from the Golf Wholesale Company. Annika also paid $1,200 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is correct?

Inventory is debited $41,200.

in a perpetual inventory system what is increased for the amount owed from the inventory purchase on credit

Liabilities

A company sold equipment for $27,100 cash which had a book value of $23,000. The effect of this transaction on the company's accounting equation is:

Total assets and equity increase $4,100

the shipping charges paid by the seller are..

a selling expense. The payment of the shipping charge reduces the seller's cash

cost of goods available for sale can be calculated by..

adding back together cost of goods sold and ending inventory

The amount of inventory purchased during an accounting period can be calculated by..

adding back together cost of goods sold and ending inventory to calculate cost of goods available for sale. Beginning inventory is then subtracted from cost of goods available for sale to determine the amount of inventory purchased during the period.

Cost of goods sold is..

an expense and is increased with a debit entry.

if ending inventory is understated then..

cost of goods sold is overstated by the same amount. An overstatement of cost of goods sold will cause net income and retained earnings to be understated by the amount of the original error.

perpetual inventory system

decreases the inventory account when inventory is sold and recognizes cost of goods sold at that time

sale of inventory

decreases total assets

gross margin

difference between sales revenue and the cost of goods sold

Common size financial statements show

each dollar amount on a company's financial statements as a percentage of another dollar amount on the financial statements.

A common size income statement shows

each dollar amount on the income statement as a percentage of sales.

Cost of goods available for sale is allocated between..

ending inventory and cost of goods sold at the end of an accounting period

the shipping costs increase...and decreases...

expenses and decrease net income on the income statement. The reduction of net income reduces equity on the balance sheet.

the inventory account is increased for purchases of inventory and also for...

freight costs incurred by the buyer

gross margin percentage

gross margin/net sales

Gross profit represents

how much of a company's sales revenue remains to cover the rest of a company's expenses after taking into consideration cost of goods sold.

the amount of the gain..

increases assets and equity

Under the perpetual inventory system, if the physical count of inventory is less than the accounting records indicate there has been a

loss of inventory. Inventory must be written down to reflect this loss. Assets and net income will decline by the amount of the loss.

Which of the following would appear on a single step income statement

net income for an accounting period

A single-step income statement calculates..

net income in one step. No subtotals for gross profit or operating income appear on a single-step income statement.

Revenues are reduced by the amount of the sales discount which reduces..

net income on the income statement and equity on the balance sheet.

The recognition of cost of goods sold decreases...

net income which will decrease equity

net income percentage

net income/net sales

A loss is recognized when...

proceeds from the disposal of an asset are less than the asset's book value

A gain is recognized when..

proceeds from the disposal of an asset exceed the asset's book value

A periodic inventory uses a purchases account to..

record purchases of inventory made throughout the accounting period. The purchases account is increased with debit entries.

contra accounts

reduce sales revenue. examples are sales returns, sales discounts, and sales allowances

Under a perpetual inventory system, purchase discounts...

reduce the cost of inventory purchased

Operating income is..

sales revenue less cost of goods sold less the rest of operating expenses.

net sales is the amount of..

sales revenue that remains after deducting sales returns, discounts, and sales allowances granted to customers.

Gross profit is calculated by..

subtracting cost of goods sold from sales revenues.

The cost of financing an inventory item is calculated by..

taking the cost of the asset times the interest rate that the company could earn on an investment times the length of time the asset was unsold

A purchase discount also reduces the amount..

that is owed to a vendor for an inventory purchase on credit

Operating income represents

the amount a company has earned from its primary business activity.

Sales discounts taken by a customer on credit sales reduces..

the amount of cash collected from a customer which decreases assets

Company D sold land for $203,000 which is carried on its books at $229,200. Which of the following statements is correct regarding the effect of this transaction on Company D's financial statements?

total assets, equity, and net income decrease $26,200.