accounting test 2 learnsmarts

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.

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation. (Check all that apply.

Liabilities will decrease Assets will decrease

Net Sales Equation

Sales - Sales Discounts - Sales Returns and Allowances

Which of these will require a credit to the inventory account in a perpetual inventory system?

Selling inventory for cash Selling inventory on account

equation for sales revenue

Selling price times the quantity sold

Goods Available for Sale will ______ when sold

become Cost of Goods Sold on the income statement

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

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 ______.

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

Merchandisers record revenue when they ______.

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

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

payment of amounts owed for purchases made on account

Sales revenue equation

price x quantity sold

Sales Revenue reports the ______.

sales price times the quantity of goods sold

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

gross profits are

A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Ending Inventory Equation

Beginning Inventory + Purchases - Cost of Goods Sold

Cost of Goods Sold Equation

Beginning Inventory + Purchases of merchandise - Ending Inventory

Gross Profit = ________ - ___________

COGS- sales revenue

equation of cost of goods sold

Cost times the quantity sold

what is reported on the income statement?

sales revenue, gross profit, cost of goods sold

if the purchasers buys shipping its fob ______

shipping point

What is inventory?

Current asset on the balance sheet available for sale

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

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

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

there are product quality issues