AC 210 Chapter 6 Terms

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)?

Sales Returns Sales Allowances Sales Discounts

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will

be split between cost of goods sold and ending inventory

Cost of Goods Sold on the income statement reports the

cost times the quantity of goods sold during the period

Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n)

decrease in assets and liabilities

FOB _____ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business. Multiple choice question.

destination

The seller of inventory pays for shipping if the shipping terms are FOB

destination

What does FOB shipping point mean?

goods are owned by the buyer when they leave the seller's place of business

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n)

increase in assets increase in liabilities

Net Sales on an income statement equals Sales Revenue

minus Sales Returns, Allowances and Discounts

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory

only in a perpetual system

Which of the following should be debited to Inventory?

purchases of merchandise on account freight-in if shipped FOB shipping point

A multistep income statement is useful to financial statement users because it ______.

separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______

there are product quality issues

FOB destination means that goods are owned by the buyer as soon as

they arrive at the buyer's place of business

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers. True false question.

False

Beginning Inventory + Purchases =

Goods available for sale

__________ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales _________

Net; Discount

Place the income statement line items in the proper order from the top to bottom

Sales Revenue, gross Sales return, Allowances and Discount Sales Revenue, net Cost of Goods Sold Gross Profit

The entry to record the purchase of inventory on account causes

an increase in assets and liabilities

Sales returns and allowances

are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months are typically recorded after the initial sale when the actual return or allowance occurs reduce the amount the seller expects to receive from customers

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund. Multiple choice question.

contra revenue; debited

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______.

credit to Cash for the amount paid debit to Accounts Payable for the original cost credit to Inventory for the discount amount

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry

liabilities will be overstated assets will be overstated

If Accounts Payable is debited and Cash is credited, then the company is recording a

payment of amounts owed for purchases made on account

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is

received by the customer

A benefit of the _____ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.

perpetual

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory.

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to

Inventory

In a perpetual system, the ___________

Inventory

Inventory account consists of all

costs needed to get the inventory ready for sale

companies sell goods that they have produced.

Manufacturing

Inventory consists of the purchase price

plus freight-in

The Inventory account may be credited for

purchase returns and allowances

Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?

A debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold

How does a company record the $1,000 purchase of merchandise on account with discount terms of 2/10,n/30?

Inventory is increased by $1,000 and is later reduced if payment is made within the discount period.

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True

___________ is classified as a(n) _________ asset and reports the amount of merchandise available to sell.

Inventory, Current

The Cost of Goods Sold equation is

CGS = Beginning Inventory + Purchases of merchandise - Ending Inventory

Beginning Inventory + Purchases - Ending Inventory =

Cost of Goods Sold on the Income Statement

Inventory is reported as a

Current Asset, Balance Sheet

Sales Returns and Allowances are reported on the

Income Statement

Which line items are found on a multi-step but not on a single-step income statement.

Income from Operations Gross Profit

FOB ____ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business. Multiple choice question.

Shipping point

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable.

The customer received a damaged product, but kept the product and asked for a reduction in the price.

In which of these situations would a merchandiser record revenue?

The obligation has been fulfilled and control of the goods has been transferred to the customer. Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business.

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will

add the transportation costs to its Inventory account