Accounting ch 4&5

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

$78.40 debit to cash, $1.60 debit to sales discounts, and $80.00 credit to accounts receivable

Which of the following statements is correct about the periodic inventory system?

a company that uses a periodic inventory system needs only one journal entry when it sells merchandise

Jackson Company uses a perpetual inventory system. On November 30, it purchased $10,000 of merchandise and it must pay the $200 shipping charges. The credit terms for the merchandise were 2/10, n/30. The company paid for both the merchandise and the shipping charges nine days after their invoice dates. Which of the following is part of the required journal entry when Jackson pays the shipping charges of $200?

a debit to inventory for $200

In a perpetual inventory system, which accounts will the seller credit when a customer returns merchandise after purchasing it on account?

accounts receivable and cost of goods sold

Financial statements can be prepared directly from the

adjusted trial balance

Cost of goods sold:

beginning inventory + net purchases - ending inventory sales revenue - gross profit

Cost of goods sold under periodic system:

beginning inventory - ending inventory + cost of goods purchased

Ending retained earnings equals

beginning retained earnings + revenues - expenses - dividends

What type of account is Sales Returns and Allowances?

contra-revenue account

Which of the following would appear on both a single-step and a multiple-step income statement?

cost of goods sold

Which principle dictates that efforts be matched with results?

expense recognition principle

Gross profit rate:

gross profit/ net sales

Multiple-step income statement:

gross profit; income from operations; non operating activities; net income

Closing entries close revenue and expense accounts to an account called_______ and closes that account to the_________ _________ account

income summary; retained earnings

Which of the following is classified in an income statement as a non-operating activity?

interest expense

The operating cycle of a merchandising company has an extra asset account compared to a service company. What is this extra asset account?

inventory

Which is true about a wholesaler?

it sells to another business that will sell to he customer rather than sell directly to the consumer

Payments from customers received before performing services for the customers are recorded as

liabilities

Quality of earnings ratio:

net cash provided by operating activities divided by net income

Profit margin:

net income/ net sales

Net income:

net sales - cost of goods sold - operating expenses

If a year-end adjusting entry is not recorded for unearned revenues the result will be to

overstate liabilities and understate revenues

Formula for interest:

principle x interest rate x time

Net purchases:

purchases + freight-in - purchase returns and allowances - discounts

Gross profit formula:

sales - sales returns and allowances - sales discounts -cost of goods sold

Net sales:

sales revenue - sales returns and allowances - sales discount

If a company is using aggressive accounting techniques in order to accelerate income recognition then its quality of earnings ratio is

significantly less than 1

Single step

subtract total expenses from total revenues

Which of the following is correct concerning the adjusted trial balance?

the adjusted trial balance provides the primary basis for the preparation of financial statements; the company prepares the adjusted trial balance after it has journalized and posted the adjusting entries; it also proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made

Operating expenses:

the difference between net income and gross profit

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory

Expenses include

wage, depreciation, supplies expense and interest incurred on debt

Starlight Corporation, which uses a perpetual inventory system, purchased $3,000 of merchandise on August 2 on account. Credit terms were 1/10, n/30. It returned $250 of the merchandise on August 4. Which of the following is one effect when Starlight pays its bill on August 12?

Credit for inventory $27.50