AC Exam #2 (Ch. 6)

In what ways are periodic and perpetual systems similar?

- Both record a credit to Accounts Payable at the time of the purchase of merchandise on account. - Both record a credit to Sales at the time of the sale.

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____.

- total assets to decrease - total liabilities to decrease

What does the gross profit percentage tell you

A higher ratio means that more is available to cover operating expenses.

A _______ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.

Multi-step

True or false: Both the periodic and perpetual systems require a credit to Accounts Payable when inventory is purchased on account.

True

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

contra-revenue; debited

Goods available for sale will become __________ on the __________ when sold

cost of goods sold; income statement

Cost of Goods Sold on the income statement reports the....

cost times the quantity of goods sold during the period

Inventory consists of all...

costs needed to get the inventory ready for sale

Merchandisers record revenue when they...

fulfill their performance obligations by transferring control of the goods to customer

Corporations with high sales volume, such as WalMart, usually have ______.

low gross profit percentages

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.... - in both periodic and perpetual systems OR - only in a perpetual system

only in a perpetual system

When a seller fulfills its performance obligation, it credits...

revenue

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to:

- compare one company with another. - make comparisons over time.

Which line items are found on a multi-step but not on a single-step income statement. - Income from Operations - Net Income - Cost of Goods Sold - Gross Profit - Net Sales

- income from operations - gross profit

Which of these will require a credit to the inventory account in a perpetual inventory system? - Purchasing inventory on account - Purchasing inventory for cash - Paying cash for inventory previously purchased on account - Selling inventory for cash - Collecting cash for inventory previously sold on account - Selling inventory on account

- selling inventory for cash - selling inventory on account

Which of the following costs should be added to the buyer's Inventory account? - Freight-in with terms FOB destination - Freight-out with terms FOB destination - Freight-in with terms FOB shipping point

Freight-in with terms FOB shipping point

Why is inventory reported as a current asset?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.