chapter 4 Accounting

a journal entry for a sale of merchandise on account will result in the following:

•Debit to accounts receivable •Debit to cost of goods sold •Credit to Sales

Freight Terms

•Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB desination •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 • Terms FOB destination means that the seller is responsible for shipping costs.

3 main parts of multi step income statement

•income from operations •gross profit • net income

Sales Discount is a ______ account. and increased with a ______

Contra- Revenue debit

Sales is a ______ account and is reported on the ___________________

Revenue Account Income Statement

Statements that correctly describe the flow of costs in a Merchandisers accounting cycle.

• beginning inventory + net purchases = merchandise available for sale •ending inventory + cost of goods sold= total merchandise available for sale

Sally Beauty Warehouse uses the perpetual inventory system to account for its merchandise. On Nov. 2, it sold $700 of merchandise on credit with terms of 2/15,n/30. Demonstrate the required journal entry to record the receipt of payment from the customer on Nov. 13.

•Debit Cash $686 •Credit Accounts Receivable $700 •Debit Sales Account $14

X mart uses the perpetual inventory system to account for its merchandise. On May 1st, it's sold $1400 of merchandise for cash. The original cost of the merchandise to X Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below.

•Debit cost of goods sold $500 •Credit Merchandise inventory $500 •Debit cash $1400 •Credit Sales $1400

debit memorandum

when a buyer returns or takes an allowance on merchandise, the buyer issues this to inform the seller of a debit made to the sellers account in the buyers records

Sticky's Company's merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. What does the adjusting entry to record the shrinkage include:

•Debit to cost of goods sold for $50 •Credit to Merchandise Inventory for $50

Returned merchandise costing $50 is defective, but is estimated to be valued at $45. A loss from defective merchandise is:

Debited for $5

The balance sheet of a merchandiser and a service business have one major difference. What item would appear only on a merchandisers balance sheet.

Merchandise Inventory

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

True or False: a single step income statement shows only one subtotal for expenses.

TRUE.

Credit Memorandum

When a seller grants an allowance on a previous sale, the seller issues this to inform the customer of a credit made to the buyer's Account Receivable in the seller's records.

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.

credit merchandise inventory $50 debit accounts payable $50

Jan's Jams makes a credit sale for $300 with terms of 2/10, n/30. the cost of the merchandise is $200. required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $300; credit Sales $300; Debit cost of goods sold $200; credit merchandise inventory $200

on June 5, Jo's Market sold $1000 of goods on credit with terms of 2/10, n/30. The required journal entry to record Jo's Market Customers payment on July 6 would be:

debit cash $1,000; credit Accounts Receivable $1,000

ABC Mart received a $20 freight bill for a 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

true or false: merchandise inventory is generally converted to cash more quickly than accounts receivable

false.

calculate total cost of merchandise purchased.

invoice cost of merchandise purchases-purchase discounts received - cost of purchase returns and allowances + cost of transportation-in (shipping)

two classifications of operating expenses on a multiple step income statement

selling; general and administrative

on Dec 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Marts books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; Credit Merchandise Inventory $100

Jo's Market makes a credit sale for $1,000 with terms of 2/10, n/30. The cost of the merchandise is $400. the required journal entry to record the sale and cost of the sale is:

Debit Accounts Receivable $1,000; Credit Sales $1,000; Debit Cost of Goods Sold $400; and Credit Merchandise Inventory $400

Dogs R Us uses the perpetual inventory system to account for its merchandise. a customer returned merchandise. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R Us of $100, demonstrate required journal entry of Dogs R Us to record the return by selecting all of the correct actions below.

Debit Merchandise Inventory $100 credit cost of goods sold $100 debit sales returns and allowances $400 credit accounts receivable $400

On January 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150

On Dec. 7, Toys R Fun purchased $1000 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.

•Merchandise that is sold becomes an expense reported on the income statement • Ending inventory + Cost of goods sold = total merchandise available for sale. • Beginning Inventory + Net purchases = merchandise available for sale. • Merchandise that is purchased becomes an asset reported on the balance sheet

closing entries for merchandiser using perpetual inventory system

•Sales returns and allowances is closed with the expense accounts •The dividends account is closed to retained earnings •Sales discounts is closed with the expense accounts •Cost of goods sold is closed with the expense accounts • sales is closed as a revenue account

identify the items or sub-headings below that would appear on a multi step income statement.

•Selling Expenses •Income from operations •Gross Profit •Net Sales •General & Administrative Expenses •Cost of Goods Sold

identify the financial statements of a merchandiser

•statement of retained earnings •balance sheet •income statement

why would a seller give a sales allowance

•wants to keep a customer happy •wants to avoid future lost sales • sold merchandise was defective or unacceptable • in order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease the selling price.