chapter 4

sales discount

discount granted on sales for the customers early payment within a discount period;a contra-account to sales revenue.

credit memorandum

A customer purchased items on account from Silverfish, Inc. After a few days, the customer returned the goods. Silverfish, Inc. will issue a: A) debit memorandum. B) return receipt. C) credit memorandum. D) refund check.

credit memorandum

A document that supports the return of goods from the customer or an allowance for unsatisfactory goods and the adjustment to the customers account balance.

Compound journal entry

A journal entry affecting more than two accounts,an entry that has more than one debit/or more than one credit.

Free on board (FOB) shipping point

A shipping term specifying that title to goods passes to the buyer when the goods passes to the buyer when the goods are shipped at the sellers place of business,thus,the buyer pays the cost of shipping the goods to its location.

bar code scanner

A useful tool that updates inventory is the: A) cash register. B) bar code scanner. C) price tag on the merchandise. D) UPC number.

Periodic Inventory system

An inventory system in which the business does not keep a continuous record of inventory on hand;at the end of the accounting period,a physical count of inventory is taken and is used to determine the cost of ending inventory and the cost of the goods sold.

reduce the cost of the purchased inventory

Discounts allowed for customers who pay their invoices early: A) reduce the cost of the purchased inventory. B) increase the cost of the purchased inventory. C) are called manufacturers' discounts. D) are called allowances.

Merchandise Inventory

Goods purchased for resale to customers in the normal course of merchandising operations;also called inventory

Operating income

Gross profit minus operating expenses;also called income from operations.

the company has 10 days to pay the bill in full

If an invoice reads n/10, it means that: A) the company has 10 days to pay the bill in full. B) the company has 10 days to take the discount. C) the company takes 10% off of the total of the invoice. D) the company pays 90% of the invoice.

days in the discount period

If an invoice states 2/10, n/45, the 10 refers to the: A) percent that can be taken for the discount. B) days in the discount period. C) days in which to pay the bill in full. D) percent of the bill that has to be paid in the discount period.

Inventory

If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited by the merchandiser for the reduction in price under a perpetual inventory system is: A) Inventory. B) Accounts Payable. C) Returns. D) Cash.

Cost of goods sold

If there is a difference between the physical count and the perpetual record, the account in which the difference is recorded is: A) Sales. B) Cost of Goods Sold. C) Inventory Expense. D) Revenue.

Multi-step income statement

Income statement format that calculates net income or net loss by listing important subtotals,such as gross profit and operating income.

asset

Inventory for a merchandising business is classified as a(n): A) liability. B) revenue. C) part of Stockholders' Equity. D) asset.

True

Net income is commonly referred to as the company's "bottom line."

Gross Sales - Sales Returns and Allowances - Sales Discounts

Net sales is computed by taking: A) Gross Sales - Sales Returns and Allowances + Sales Discounts. B) Gross Sales - Sales Returns and Allowances - Sales Discounts. C) Gross Sales + Sales Returns and Allowances + Sales Discounts. D) Gross Sales - Cash received for sales.

General and administrative expenses

Office expenses such as the salaries of the company president and office employees,depreciation of items used in administration,rent,utilities,and property taxes on the office building

discount period

Period in which the customer can make early payment for a purchase and receive a discount on that purchase.

regardless of inventory system

Physical inventory counts must be done: A) when using the periodic system of inventory. B) when using bar code scan technology. C) when using the perpetual system of inventory. D) regardless of inventory system.

debit to Accounts Receivable or to Cash for $350

Sydney, a customer, purchased $350 of merchandise from Illusions, Inc. Under the perpetual inventory system, Illusions, Inc. will record a: A) debit to Accounts Receivable or to Cash for $350. B) credit to Accounts Receivable or to Cash for $350. C) credit to Cost of Goods Sold for $350. D) debit to Sales for $350.

report form

The Balance Sheet format that lists assets above liabilities is the: A) account form. B) report form. C) alphabetical form. D) liquidity form.

Liquidity

The ability to convert an asset to cash quickly.

the matching principle

The accounting principle that relates to the expensing of freight charges is: A) the cost principle. B) the reliability principle. C) the matching principle. D) none of the above.

$980

The amount of an invoice is $1,000, with terms 2/10, n/30. The amount to be paid within the discount period is: A) $1,000. B) $980. C) $900. D) $700.

change of ownership

Transferring title refers to a: A) change of ownership. B) change of buyer. C) change of seller. D) legal document.

Sales Returns and Allowances is debited; Cost of Goods Sold is credited

Under a perpetual inventory system, when goods are returned to the retailer from a customer: A) Cost of Goods Sold is debited; Sales Returns and Allowances is credited. B) Sales Returns and Allowances is debited; Cost of Goods Sold is credited. C) Sales is debited; Cost Goods Sold is credited. D) Inventory is debited; Sales is credited.

only known when a physical count is taken

Under the periodic inventory system, the amount of inventory is: A) constantly updated. B) only known when a physical count is taken. C) adjusted after each sale. D) adjusted after each purchase.

a decrease in cost of goods sold

Under the perpetual inventory system, Sales Returns cause: A) an increase in Cost of Goods Sold. B) an increase in Revenue. C) a decrease in Cost of Goods Sold. D) no effect on cost of goods sold.

Inventory as a debit

Under the perpetual inventory system, the account to which purchased goods are recorded is: A) Purchases as a credit. B) Inventory as a debit. C) Cost of Goods Sold as a debit. D) Purchases as a debit.

Increase Accounts Receivable

When a customer returns goods, the merchandiser will NOT: A) Decrease net sales revenue B) Decrease Cost of Goods Sold C) Increase Accounts Receivable D) Increase Inventory

Cash

When a merchandiser sells on account, which of the following accounts is NOT needed to record the transaction? A) Cost of Goods Sold B) Accounts Receivable C) Inventory D) Cash

debiting Accounts Receivable and crediting Sales Revenue

When a retailer sells merchandise on account, the general entry for the sales price would be: A) debiting Accounts Receivable and crediting Sales Revenue. B) debiting Accounts Receivable and crediting Inventory. C) debiting Accounts Receivable and crediting Cost of Goods Sold. D) debiting Cost of Goods Sold and crediting Sales Revenue.

debit Inventory and credit Accounts Payable

When merchandise is purchased on account under the perpetual inventory system, the journal entry is: A) debit Purchases and credit Accounts Payable. B) debit Accounts Payable and credit Inventory. C) debit Inventory and credit Accounts Payable. D) debit Accounts Payable and credit Purchases.

Accounts Payable

Which of the following accounts is NOT used to account for merchandise sales transactions? A) Accounts Payable B) Accounts Receivable C) Sales Discounts D) Sales Returns and Allowances

4/20, n/30

Which of the following credit terms allows a discount of 4% if payment is made within 20 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice? A) 4/20, EOM B) 4/EOM, n/30 C) 4/20, n/30 D) 20/4, n/30

FOB shipping point

Which of the following indicates that the shipment is free on board and the buyer pays all of the shipping and freight costs? A) Cash on delivery B) FOB shipping point C) FOB destination D) 2/10, n/30

Utility bill

Which of the following is NOT a selling expense? A) Advertising B) Salary of salesperson C) Utility bill D) Commissions

Ernst & Young

Which of the following would NOT be classified as a retailer? A) Toys R Us B) Ernst & Young C) Barnes & Noble D) PetSmart

Fiona's Fashion Boutique

Which of the following would be classified as a retailer? A) Greene's Garden Care B) Paul's Pet Walking C) Fiona's Fashion Boutique D) Taylor's Tax Service

selling expenses

expenses related to advertising and selling products,including sales salaries,sales commissions,advertising,depreciation on items used in sales,and delivery expense.

account form

A balance sheet format that lists assets on the left of the report and liabilities and stockholders equity on the right,just as those accounts appear in the accounting equation.

Subsidiary ledger

An accounting record that contains details,such as a list of customers and the accounts receivable due from each or a list of suppliers and the accounts payable due to each.

The actual cost of the item

Costs of Goods Sold includes which of the following? A) The actual cost of the item B) Administrative fees C) Management salaries D) Depreciation Expense

selling expense

Depreciation on the company warehouse is an example of a(n): A) inventory expense. B) asset expense. C) selling expense. D) delivery expense.

Title

Legally recognized rights to the possession and ownership of property.

long term liabilities

Liabilities other than those that are current

retail businesses

Macy's.com, Walmart.com, and Target.com are examples of Internet: A) service businesses. B) manufacturing businesses. C) retail businesses. D) wholesalers.

True

Net Sales minus Cost of Goods Sold equals Gross Profit.

Other revenues and expenses

Revenues and expenses that fall outside the main operations of a business such as interest expenses and a loss on the sale of long term assets

Operating cycle

The time span during which the business contains resources,uses them to sell goods and services to customers,and collects cash from these customers.

classified balance sheet

a balance sheet that separates assets and liabilities into current and long term classes

Perpetual inventory system

an inventory system in which the business keeps a continuous record of inventory on hand and the cost of the goods sold.

current assets

assets expected to be converted to cash,sold or consumed within one year or the business operating cycle if the cycle is longer than a year.

long term assets

assets other than those that are current

n/30

credit term specifying that payment for a purchase is due within 30 days after the date of the invoice.

Walmart both purchases and sells products.

8) Which of the following characterizes Walmart? A) Walmart both purchases and sells products. B) Walmart sells products but doesn't purchase products. C) Walmart purchases products but doesn't sell products. D) Walmart neither purchases nor sells products.

report form

A balance sheet format that reports assets at the top of the report,followed by liabilities,and ending with stockholders equity at the end of the report

Inventory

A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for the discount under a perpetual inventory system is: A) Inventory. B) Accounts Payable. C) Discount. D) Cash.

purchase discount

A discount offered as an inducement for prompt payment of an invoice is called a(n): A) invoice discount. B) purchase discount. C) early discount. D) cash discount.

compound entry

An entry that has more than one debit and/or credit is called a: A) double entry. B) compound entry. C) multiple-step entry. D) special entry.

purchase discount

Discount received on purchases by paying early within a discount period.

Gross profit

Net sales revenue minus cost of goods sold;also called gross margin

Freight charges

The cost of shipping merchandise from the seller to the buyer

Property,plant and equipment

a heading often seen on the balance sheet used to describe fixed,or plant,assets.,examples include land,buildings,furniture and fixtures

Wholesalers

businesses that buy goods from manufacturers and resell them to retailers.

retailers

businesses that buy goods from manufacturers or whole salers and resell them to the general public

current liabilities

debits due to be paid with cash or fulfilled with goods and services within one year or the entity's operating cycle is the cycle is longer than a year

single-step income statement

income statement format that prevents groups all revenues together and lists all expenses together,subtracting total expenses from total revenues and calculating net income or net loss without computing any subtotals.

Net sales revenue

sales revenue less sales discounts and sales returns and allowances.

sales revenue

the amount a business earns from selling its inventory

fixed assets

the long lived assets of a business.,including land,buildings,furniture,fixtures,and equipment,also called plant assets and commonly shown on the balance sheet as property,plant and equipment

sales return

Merchandise returned by the customer for a cash refund is called a: A) sales return. B) sales allowance. C) debit memorandum. D) credit memorandum.

true

Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales Revenue account.

revenue

Sales is a(n) ________ account. A) asset B) liability C) revenue D) contra-

credit terms

The payment terms for customers who buy on account

Purchase returns and allowances

A reduction in the amount owed for a purchase due to returning merchandise or accepting unsatisfactory goods.

Sales Invoice

A bill that documents the sale of goods to a customer.

order of liquidity

Current assets are listed on the Balance Sheet in: A) alphabetical order. B) order of liquidity. C) ascending order of value. D) descending order of value.

False

A journal entry that has more than one debit or more than one credit is known as a complex journal entry.

Accounts Receivable subsidiary ledger

A list of credit customers is called a(n): A) Accounts Payable subsidiary ledger. B) general ledger. C) Accounts Receivable subsidiary ledger. D) general journal.

True

Debit card and credit card sales are counted as cash transactions

Gross profit percentage

A measure of profitability equal to gross profit divided by net sales revenue;also called gross margin percentage.

Net income percentage

A measure of profitability equal to net income divided by net sales revenue.

Accounts Payable subsidiary ledger

A record to keep the amount owed to each supplier is called a(n):

Sales return and allowances

A reduction in the amount of sales due to customers returning merchandise or accepting unsatisfactory goods;a contra-account to sales revenue.

free on board

FOB means

debit Inventory; credit Cash

Charmed, Inc. purchased merchandise from Birch Co. for cash. The journal entry for Charmed, Inc. under a perpetual inventory system will be: A) debit Inventory; credit Cash. B) debit Cash; credit Inventory. C) debit Inventory; credit Accounts Payable-Birch Co. D) debit Inventory; credit Accounts Receivable-Birch Co.

n/eom

Credit term specifying that payment for a purchase is due by the end of the month;also referred to as eom.

Operating expenses

Expenses of operating a business other than cost of goods sold;examples include depreciation,rent,salaries,utilities,advertising,delivery expense,property taxes,and supplies expense.

Income Statement

Sales Returns and Allowances appear on the: A) Balance Sheet. B) Statement of Retained Earnings. C) Income Statement. D) Income Statement and Balance Sheet.

$105

Simmons, Inc. received an invoice from Wilson Company for $3,500 with terms of 3/10, n/45 on March 8. If Simmons pays the bill on March 15, they will credit inventory under a perpetual inventory system for: A) $0. B) $350. C) $105. D) $3,500.

cost of goods sold

The cost of the inventory a business has sold to customers.

seller of the merchandise

The discount period is determined by the: A) seller of the merchandise. B) purchaser of the merchandise. C) customer. D) amount of the invoice.

debit to Cost of Goods Sold and a credit to Inventory

The entry to record the company's cost of selling merchandise under a perpetual inventory system would be a: A) debit to Accounts Receivable and a credit to Sales. B) debit to Inventory and a credit to Cost of Goods Sold. C) debit to Cost of Goods Sold and a credit to Inventory. D) debit to Cost of Goods Sold and a credit to Sales.

final consumers.

The general public is referred to as: A) final consumers. B) service customers. C) retail customers. D) manufacturing customers.

a retail business

The general public most often buys products from: A) a wholesale business. B) a retail business. C) a manufacturer. D) all of the above.

earnings per share (EPS)

The portion of a company's earnings allocated to each outstanding share serves as a indicator of a company's profitability

discount period

The time period within which an invoice may be paid early to receive a discount is called the: A) credit period. B) payment period. C) discount period. D) cash period.