ACCOUNTING

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms

Terms FOB destination means that the seller is responsible for shipping costs. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.

Explain what the credit terms of 2/10,n/30 mean.

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

Merchandise Inventory

The goods a business has on hand for sale to customers

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Accounts Payable $800; credit Merchandise Inventory $16; and credit Cash $784

merchandiser

earns net income by buying and selling merchandise

true or false:

false: Net income is the last line.

true or false :Accounts receivable is included on the statement.

false; It is on the balance sheet

true or false: Merchandise inventory is reported on the statement

false;It is reported on the balance sheet.

merchandise

goods that a merchandising business purchases to sell

Describe good cash management practices involving inventory purchases.

invoices should be paid on the last day of the discount period. Buyers should take advantage of early payment discounts.

Merchandise consists of___________that a company acquires to resell to______________________

products, goods, items, inventory, or assets customers, consumers, or buyers

Merchandise inventory can be described as:

products that a company owns and intends to sell. an account increased with a debit. an asset account. an account appearing on a balance sheet of a merchandiser.

On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart.

$15

On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.

$8

summarize what cash discounts are

A buyer views a cash discount as a purchase discount. A seller views a cash discount as a sales discount. Cash discounts are described in credit terms.

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

Cost of goods sold is used to figure gross profit. Cost of goods sold is an expense reported on the income statement. Cost of goods sold is also called cost of sales. Cost of goods sold includes the expenses of buying and preparing an item for sale.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions

Credit Cash $1,000. Debit Accounts Payable $1,000.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $20. Credit Cash $980. Debit Accounts Payable $1,000.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions

Debit Accounts Payable $1,000. Credit Cash $1,000.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions

Debit Accounts Payable $1,000. Credit Cash $980. Credit Merchandise Inventory $20.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $1,000.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions

Debit Accounts Payable $350. Credit Merchandise Inventory $7. Credit Cash $343

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions

Debit Accounts Payable $50 Credit Merchandise Inventory $50.

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Cash $300

Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination. Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual inventory system to record the freight charges.

Debit Delivery Expense; credit Cash.

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

Debit Merchandise Inventory $20; credit Cash $20.

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Accounts Payable $300.

periodic inventory system

Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand

Completing the trial balance section in four steps

Enter the general ledger account names. Transfer the general ledger account balances to the debit and credit column of the trial balance section. Total the debit and credit columns to prove that the trial balance is in the balance. Place a double rule under each trial balance column to show that the work in that column is complete

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

summarize why a buyer would desire a purchase allowance?

In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price. Purchased merchandise was defective or unacceptable.

Net Income Equation

Net Income = Revenues - Expenses

Which of the following costs are included in merchandise inventory?

Purchase costs Costs necessary to ready the merchandise for sale Taxes assessed on the merchandise Shipping fees charged by the vendor

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

describe a discount period

The discount period is the time period in which a discount may be taken by the buyer.

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements

When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. Terms FOB destination means that the seller is responsible for shipping costs. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

The discount period is the time, (before/between) the invoice date and a specified date on which the payment amount owed can be Unavailable (increased/reduced) because of early payment.

between; reduced

Cost of Goods Sold

the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies

Operating Cycle

The time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash.