ch 5 acc rev

customer allowance

A reduction from the initial selling price due to merchandise that is defective, is damaged during shipment, or does not meet the buyer's expectations, which reduces the amount owed by customer.

inventory subsidiary ledger

A supporting ledger to the inventory account, containing an individual account for each inventory item.

Which of the following does not relate to either of the two adjusting entries for customer refunds, allowances, and returns?

One entry records the sales of goods to customers.

When recording merchandise transactions under the periodic inventory system, which of the following is false?

Purchases of inventory are recorded in the inventory account

What accounts are associated with periodic inventory?

Purchases, purchases discounts (contra), purchases returns and allowances (contra), freight in

accounts receivable subsidiary ledger

The subsidiary ledger containing the individual accounts with customers

The steps in preparing closing entries under the periodic inventory system include all of the following except a a. debit Inventory for its end-of-period balance. b. credit cost of goods sold for its balance. c. credit each expense account, purchases, and Freight In. d. debit each revenue account, purchases discounts, and purchases returns and allowances.

credit cost of goods sold for its balance

FOB Dest

deb delivery exp and credit cash from the company

The records of Garden Company indicate sales of $900,000, cost of goods sold of $500,000, an ending inventory balance of $100,000, and estimated returns of 1% of sales. The adjusting journal entries to record estimated returns will include a

debit to Sales for $9,000

Cost of goods sold is reported as a(n)

expense

What kind of store has a short operating cycle?

grocery store

The difference between the balance sheets of a service company and a retail company is that the retail company's balance sheet includes

inventory

Can the shrinkage be directly determined for a periodic acc?

no

The accounts used to record transactions under the periodic inventory system include

purchases returns and allowances, purchases discounts, Freight In

sales

revenue from merchandise

The numerator in the asset turnover ratio is

sales.

In the asset turnover ratio, the assets consist of

the average of total assets from the beginning and end of the period.

When comparing the adjusting process under the perpetual and the periodic inventory systems,

the ending inventory is determined by a physical count under both systems

gross method

A method of recording a sales invoice at the gross amount rather than the amount net of any discounts offered for early payment.

Estimated Returns Inventory

A current asset account for the estimated amount of merchandise that will be returned by customers.

single-step income statement

A form of income statement in which the total of all expenses is deducted from the total of all revenues.

multiple-step income statement

A form of income statement that contains several sections, subsections, and subtotals. Sales, cost of goods sold, gross profit, operating income , and other revenues and expenses are on it

debit memorandum

A form used by a buyer to inform the seller of the amount the buyer proposes to debit to the account payable due the seller.

periodic inventory system

An inventory system in which the inventory records are updated only after a physical count taken at periodic intervals, usually at the end of an accounting period.

Global Company sold merchandise to Montana Industries for cash, $3,450. The cost of goods sold was $1,850. Global Company refunded Montana Industries $900 for returned merchandise. The cost of goods sold was $600. Which of the following will be recorded by Global Company in the journal entry for the refund from the cost of the sale?

Credit Estimated Returns Inventory, $600

Global Company purchased merchandise on account from Planet Company for $56,000 with terms 1/15, net 45. Global Company returned $6,000 of the merchandise and received full credit from Planet Company. Which of the following will be included in the journal entry for the payment (assume that the amount due was paid within the discount period)?

Credit to Cash, $49,500

trade discounts

Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.

purchases discounts

Discounts taken by the buyer for early payment of an invoice

Administrative expenses

Expenses incurred in the administration or general operations of the business.

general expenses

Expenses incurred in the administration or general operations of the business.

Selling expenses

Expenses that are incurred directly in the selling of merchandise.

FOB (free on board) shipping point

Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination. Inventory debit and credit cash for the buyer

purchases returns and allowances

From the buyer's perspective, returned merchandise or an adjustment for defective merchandise.

subsidiary ledger

Individual accounts with a common characteristic grouped together in a separate or secondary ledger, which is used to support a controlling account in the general ledger.

gross profit

Sales minus the cost of goods sold.

The asset turnover ratio is computed as

Sales/Average Total Assets

inventory shrinkage

The amount by which the merchandise for sale, as indicated by the balance of the inventory account, is larger than the total amount of merchandise counted during the physical inventory. adjusting entry

Operating income

The difference between gross profit and operating expenses.

income from operations

The difference between gross profit and operating expenses.

perpetual inventory system

The inventory system in which each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger, and therefore the inventory records are updated continuously

general ledger

The primary ledger, when used in conjunction with subsidiary ledgers, that contains all of the balance sheet and income statement accounts.

operating cycle

The process by which a company spends cash, generates revenues, and receives cash from customers.

At the end of the year, assume the balance of Inventory is $109,225 and physical inventory on hand is $106,320. The adjusting journal entry to record shrinkage will be

a $2,905 debit to Cost of Goods Sold and a $2,905 credit to Inventory.

The inventory records of Global Company indicate that $76,800 of merchandise should be on hand at the end of the month. The physical inventory indicates that $74,900 is actually on hand. The journal entry to adjust for inventory shrinkage will include

a debit to Cost of Goods Sold for $1,900

accounts payable subsidiary ledger

accounts payable subsidiary ledger

Other income is

added to operating income.

On a multiple-step income statement, selling expenses plus administrative expenses is equal to

total operating expenses.