Chapter 8

Under the perpetual inventory method, when inventory is purchased, Merchandise Inventory

is debited and Cash or Accounts Payable is credited.

Unearned Revenue is reported as a(n) _______________________ on the balance sheet.

liability

The traditional balance sheet arrangement of assets on the left-hand side with the liabilities and owner's equity on the right-hand side is called the report form.

FALSE

The worksheet of a merchandising entity that uses the perpetual inventory system will not have a Transportation In account.

FALSE

Under the perpetual inventory system, the ending merchandise inventory balance is closed at the same time as Cost of Goods Sold.

FALSE

When preparing a worksheet for a merchandising entity that uses the periodic inventory system, the merchandise inventory amount shown on the trial balance will be carried over to the Balance Sheet debit column.

FALSE

When preparing a worksheet for a merchandising entity that uses the perpetual inventory system, the cost of goods sold can be derived from the balances of several accounts in the Income Statement columns.

FALSE

If beginning inventory is $80,000 and ending inventory is $10,000, the balance of the merchandise inventory account after adjustments will be $70,000.

False

In journalizing adjusting entries, Merchandise Inventory is credited for the amount of ending inventory.

False

In journalizing adjusting entries, an Unearned Revenue account is credited for any portion earned during the accounting period.

False

Merchandise Inventory has a normal credit balance.

False

Only the adjusted credit balance in the merchandise inventory account is extended to the Adjusted Trial Balance columns of the work sheet.

False

Only the debit amount for the income summary account must be extended in the work sheet.

False

Purchases Returns and Allowances is a contra-revenue account.

False

The balance of Unearned Revenue is reported on the income statement at the end of the accounting period.

False

The income summary account will always reflect the same balance as the merchandise inventory account at the end of the accounting period.

False

The merchandise inventory account always reflects the current inventory on hand.

False

When unearned revenue is finally earned, a revenue account is debited to reflect the amount of the revenue earned.

False

VAT Payable is a _______________ in the general ledger.

LIABILITY

In the worksheet, the ending inventory amount will appear in the income statement credit column and the balance sheet debit column.

TRUE

Nét sales is not an account name.

TRUE

On the worksheet of a merchandising entity that uses the periodic inventory system, both Purchases and Purchases Returns and Allowances appear in the Income Statement columns.

TRUE

On the worksheet of a merchandising entity that uses the perpetual inventory system, the Merchandise Inventory account balance is not adjusted.

TRUE

Operating income is not computed in the nature of expense method.

TRUE

Purchases Discounts would be recorded as a credit.

TRUE

The excess of gross profit over operating expenses is called operating profit.

TRUE

The function of expense method reports gross margin and income from operations.

TRUE

The sales returns and allowances account has a normal debit balance.

TRUE

Under the periodic inventory system, the Merchandise Inventory account appears in the closing entries made at the end of the period.

TRUE

Using the nature of expense method of presenting expenses in the income statement has the advantage of simplicity because no allocation of operating expenses between functional classifications is necessary.

TRUE

When preparing closing entries under the periodic inventory system, Sales and Purchases Returns and Allowances are both closed in the same entry.

TRUE

When using the perpetual inventory system, the Merchandise Inventory account will not appear in closing entries.

TRUE

The formal income statement uses _________________ figures for inventory.

TWO SEPARATE

Adjustments are made on the work sheet for both beginning and ending Merchandise Inventory.

True

After adjustments are made to the merchandise inventory account and posting is completed, the income summary account will reflect both the amount of beginning and ending inventory.

True

After journalizing adjusting entries, the amounts must be posted to the accounts in the general ledger.

True

An increase in a revenue account may reflect a decrease in a liability account.

True

At the end of the accounting period, the merchandise inventory account is credited for the beginning inventory amount.

True

Both the debit and credit amounts in the merchandise inventory account at the end of an accounting period are used to calculate the cost of goods sold.

True

Cash received in advance for performing a service or delivering a product is called unearned revenue.

True

If beginning inventory is $12,000 and ending inventory is $9,000, the first step in the adjusting process is to credit Merchandise Inventory for $12,000.

True

If beginning inventory is $30,000 and ending inventory is $35,000, the cost of the inventory on hand at the end of the accounting period is $35,000.

True

Only the debit adjustment amount in the merchandise inventory account is extended to the Adjusted Trial Balance columns of the work sheet.

True

Purchases Discounts is a contra-cost account.

True

Some businesses require payment before delivering a product or performing a service.

True

The Purchases account is debited when inventory is purchased under a periodic inventory system.

True

The adjusted balance of the merchandise inventory account is extended to the Balance Sheet columns of the work sheet.

True

The amount of inventory on hand is determined by physically counting the goods on hand and determining the cost of those goods.

True

The balance of unearned revenue is reported on the balance sheet at the end of the accounting period.

True

The credit amount for Income Summary in the Adjusted Trial Balance column reflects the inventory on hand at the end of the accounting period.

True

The credit to the merchandise inventory account when making adjustments at the end of the accounting period will be the same amount as was debited at the end of the previous accounting period.

True

The merchandise inventory account is never debited or credited during the year using the periodic method.

True

The transaction to record unearned revenue results in an increase to an asset account.

True

Two adjustments are made to the merchandise inventory account on the work sheet.

True

Under the accrual basis of accounting, revenue is recorded when earned regardless of when cash is received.

True

Unearned Revenue is a liability account.

True

When part of the amount of unearned revenue has been earned and the account adjusted accordingly, a revenue account must be adjusted by that partial amount.

True

When part of the amount of unearned revenue has been earned, the unearned revenue account must be adjusted.

True

Ending inventory is subtracted from cost of goods available for sale to compute:

cost of goods sold.

A work sheet is prepared

for the [period] ended [date].

In preparing a work sheet, the amounts for the Trial Balance columns are copied from the

general ledger.

If Purchases is Account No. 501, the correct account number for Purchases Returns and Allowances is

501.1.

Jan Cahilig Traders started operating in 2019. For the year ended 2019, the sales, purchases and closing inventory are P500,000, P200,000 and P10,000 respectively What is the amount of cost of goods sold for the year ended 2019? a. P190,000 b. P200,000 c. P790,000 d. P800,000

A. P190,000

The ____________________ lists in alphabetical order an account for each customer.

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

__________________ in the general ledger is called the controlling account.

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

A reversing entry involves certain ________________ entries.

ADJUSTING

_______________ are related to the administrative function.

ADMINISTRATIVE EXPENSES

The ___________________ records the receipt of cash from any source.

CASH RECEIPTS JOURNAL

Sales discount is a __________________ account.

CONTRA-REVENUE

Issuing a _____________ results in the seller reducing its accounts receivable.

CREDIT MEMORANDUM

A discount period is less time than the ____________.

CREDIT PERIOD

________________ are cash or other assets that will be converted into cash during the normal operating cycle of the company or one year, whichever is longer.

CURRENT ASSETS

Debts or obligations that are to be paid with current assets within one year or one operating cycle are called _____________.

CURRENT LIABILITIES

The normal balance of Sales Discounts is

DEBIT

The (v) in the sales journal indicates that the accounts receivable ledger has been updated _______________.

DURING THE MONTH

The totals of the sales journal are posted at the _____________________ to the general ledger account.

END OF THE MONTH

The ________________________ figure for capital is not found on the worksheet.

ENDING

Gross margin from sales is the income that the business would have made if all goods available for sale had been sold during the period.

FALSE

Sales Discounts is a contra-revenue account with a normal credit balance.

FALSE

The Purchases account is closed to the Merchandise Inventory account.

FALSE

The closing entry for transportation in debits purchases and credits income summary.

FALSE

The determination of net cost of purchases would include addition of transportation out.

FALSE

The ending inventory amount appears in both Income Statement columns on the worksheet of a merchandising entity that uses the periodic inventory system.

FALSE

By the adjusting process, the beginning inventory of the period is transferred to _______________.

INCOME SUMMARY

Both the debit and credit amounts from which of the following accounts are extended to the Adjusted Trial Balance columns of the work sheet?

Income Summary

If a difference is found between the physical count and the amount in the perpetual inventory records, an adjusting entry is made to which of the following accounts?

Inventory Short and Over

Which of the following accounts is never debited or credited during the accounting period?

Merchandise Inventory

13. The post-closing trial balance contains no ________________________ accounts.

NOMINAL OR TEMPORARY

Mortgage Payable is an example of a ___________________.

NONCURRENT LIABILITY

The gross profit figure is ____________ found on the worksheet.

NOT

__________________________ could be broken down into selling and administrative expenses.

OPERATING EXPENSES

The total of the ___________ column in the cash receipts journal is never posted.

OTHER ACCOUNTS

The accounts payable subsidiary ledger represents a potential ____________________of cash.

OUTFLOW

Ending merchandise inventory is a _______________.

PERMANENT ACCOUNT

__________ are long-lived assets used for the production or sale of other assets or services.

PROPERTY AND EQUIPMENT

In the income statement, operating expenses are classified as selling expenses, administrative expenses and other operating expenses.

TRUE

A __________________ records the sale of merchandise on account.

SALES JOURNAL

___________ is a contra-revenue account.

SALES RETURNS AND ALLOWANCES

A __________________ lists the ending balances from the accounts receivable ledger.

SCHEDULE OF ACCOUNTS RECEIVABLE

______________ expenses are related to the selling activity.

SELLING

Which account balance is NOT used to compute the cost of goods sold? Merchandise Inventory Purchases Discounts Purchases Sales

Sales

An example of a contra-revenue account is

Sales Returns and Allowances.

A typical account found under the heading of "Revenue" in a chart of accounts is

Sales.

Which of the following accounts would NOT be found under the heading of "Cost of Goods Sold" in a chart of accounts? Purchases Returns and Allowances Supplies Freight-In Purchases

Supplies

Both Transportation in and Transportation Out accounts are closed by crediting the accounts.

TRUE

Cost of goods sold is a major expense of a merchandising business.

TRUE

Cost of goods sold is the primary difference between a merchandising and a service business income statement.

TRUE

Debiting income summary and crediting beginning merchandise inventory eliminates the beginning inventory at the end of the period.

TRUE

A contra-revenue account is given a ".1" extension to its related ledger account's number.

True

Purchases Returns and Allowances and Purchases Discounts are examples of _________________ accounts.

contra-cost

Sales Discounts is an example of a(n) _______________________ account.

contra-revenue

On a work sheet, the Debit column of the Income Statement totals $550,356 and the Credit column totals $734,225. This represents

a net income for the business.

On a work sheet, the amount entered in the Credit column of the Balance Sheet to balance the debits and credits is $56,000. This represents

a net income of $56,000.

On a work sheet, the Debit columns of the Income Statement and the Balance Sheet both total more than the Credit columns. This represents

an error in the accounting procedures for the period.

The income summary account, after adjusting entries are posted, reflects the

beginning and ending inventory amounts.

A beginning inventory of $75,000 is removed from the merchandise inventory account by

crediting $75,000 to Merchandise Inventory.

Merchandise Inventory is listed as a(n

current asset.

Unearned revenue is reported as a(n)

current liability on the balance sheet.

Sports, Inc. plans to sell season football tickets for the 10 games played from September through November. These tickets sell for $5 each at the gate or for $45 per season package purchased before April 30. On April 30, the office reports that it has sold 200 season ticket packages and has only 50 left. The correct entry to record the sale of the season tickets is

debit Cash and credit Unearned Revenue for $9,000.

At the end of the accounting period, the correct entry in the general journal to adjust for beginning inventory is to

debit Income Summary and credit Merchandise Inventory.

At the end of the accounting period, the correct entry in the general journal to adjust for ending inventory is to

debit Merchandise Inventory and credit Income Summary.

During the accounting period, the Unearned Revenue account had a balance of $50,000 for computer equipment and software yet to be delivered. On March 31, a delivery of all of the equipment was made, leaving $5,000 worth of software pending. The correct journal entry to record this activity on March 31 is to

debit Unearned Revenue and credit Revenue for $45,000.

When goods on hand are actually counted, a(n) ______________________ has been taken.

physical inventory

Actually counting the goods on hand at the end of the accounting period and determining the cost of these goods by reviewing the accounting records is called

the physical inventory.

Which of the following is NOT a formal part of the accounting system?

the work sheet

Cash received prior to delivering a product or performing a service is called a(n)

unearned revenue.