Fin Acc (Chapt 7)

True

delivery expense is an operating expense in the income statement

freight bill

designates which party shoulders the costs and whether the shipment is freight prepaid or freight collect and also the shipping terms (shipping point or destination)

false. cash

discounts offered to the buyer to encourage early payment is called trade discount? t or f?

Trade Discount

encourage the buyers to purchase products because of markdowns from the list price.

False

for cash sales, the operating cycle is from cash to inventory to a/r and back to cash. t or f?

physical count

ending inventory should reconcile to the actual _____?

false

ending merch inventory is included in the calculation of costs of goods available for sale.

true

ending merchandise inventory for yr 1 automatically becomes beginning merch inventory of yr 2

official receipt

evidences the receipt of cash by the seller or the authorized representative.

false

for a merchandising entity, the difference between net sales and operating expenses is called gross margin.

credit memorandum

form used by the seller to notify the buyer that his account is being decreased due to errors other factors requiring adjustments.

true

goods should be recorded at their list price less any trade discounts involved.

Cash and on credit

gross sales consists of total sales for _____ and _____.

true

the balance in the merchandise inventory account at the beg of the period represents the cost of the merchandise on hand at that time.

false - carrier

the bill of lading is a document prepared by the seller detailing the terms of delivery. t or f?

false

the calculation of cost of goods available for sale during the year is not affected by the previous year's ending inventory.

true

the change in inventory level from the beginning to the end of the year affects cost of goods sold.

true

the chart of accounts for merchandising entity differs from that of service entity. t or f?

false, adding

the cost of merchandise purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period.

false, beginning of the cur year

the debit balance of the inventory account in the trial balance under the periodic inventory system is the amount of the inventory at the end of the current period.

true

the difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.

False - gross profit

the difference between revenues from sales and cost of sales is operating income? t or f?

true

the ending inventory of one period is the beg inventory of the next period.

Payor - Payee

the entity issuing the check is the _____ while the receiver is the _____.

true

the income statement of an entity that provides services only will not have cost of goods sold.

perpetual inventory system

the inventory account is continuously updated

cost of sales or cogs

the largest single expense of the merchandising business. It's the cost of inventory that the entity has sold to customers.

false.

the merchandise inventory account is not affected when a sales allowance is granted.

true

the operating cycle involves the purchase and sale if inventory as well as the subsequent payment for purchases and collection of cash.

true

the periodic inventory system relies on a physical count of merchandise for its balance sheet column.

false. for resale

the purchase equipment not for resale should be debited to the purchases account

true

the sales discount account is a contra income account and will have a debit balance

true

the term freight prepaid or collect will dictate who shoulders the transportation costs

false.

the terms 2/10, n/30 means that 2% discount is allowed on payments made over 10 but before 30 days after the invoice date

false, need

there is no need for a physical inventory count in the perpetual inventory system.

true

purchase requisition is a document from the user that goods be purchased

Free on Board

F.O.B is abbreviated as

true

FOB shipping point, freight prepaid the buyer must have a higher obligation to the seller.

Net sales

It is the first part of the merchandising income statement

Cash Sales

Its cycle is from cash to inventory and back to cash.

true

Merchandise Inventory could include goods in transit.

buying and selling goods

Merchandising entities earn profit from _______ and ________ goods.

False. More Complex Income Statement

Merchandising entities need a basic income statement. True or False?

False. only at the end period

Only at the beginning period is when the inventory is counted. True or false?

False. the higher the profit.

The faster the sale of inventory and the collection of cash, the lower the profits. True or False?

Cost of Sales / Cost of Goods Sold

This represents the cost of inventory the entity has sold to customers.

true

a validated deposit slip indicates that cash and checks were actually deposited. t or f?

true

a business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.

true

a credit term 2/10 n/30, means that the buyer may deduct 2%from the invoice if payment is made within 10 days from the end of the month.

Receiving Report

a document containing information about goods received from a vendor.

bill of lading

a document issued by the carrier - a trucking, shipping or airline that specifies contractual conditions and terms of delivery such as freight terms, time, place and the person named to receive the goods.

Statement of Account

a formal notice to the debtor detailing the accounts already due.

true

a physical inventory is usually taken at the end of the accounting period.

true

cash discounts are always advantageous to buyer or seller.

false- purchase discounts

cash discounts are called sales discount o the buyers POV

true

gross sales consists of of cash and collectibles during the period.

false - accounts payable or cash

if a trader purchased a delivery truck, the credit must be purchases.

false. subtracted

merch inventory end is added to GAFS.

false. bill of lading

official receipt is document issued by the carrier.

false. credit memo

receiving report is used by the seller to notify the buyer that the payable is decreased,

contra-income account

sales discount and sales returns and allowances is considered as _______ account because it's deducted from the gross sales in the income statement

false, transpo out

shipping cost borne by the seller is debited to transpo in.

true

tanspo in is an addition to the net purchases.

true

the amount of inventory beginning never changes during the period.

Merchandise inventory

the key factor in determining cost of sales

false

FOB shipping point means that the seller incurs the shipping costs.

True

Service entities only need a basic income statement. True or False?

Purchase requisition - Purchase Order - Invoice - Receiving Report - Approving Invoice (payment)

Steps in Purchase Transaction

False. Net sales should be subtracted.

To get the gross profit, net sales should be added to the cost of sales. True or False?

False. Operating expenses should be subtracted to the Gross profit.

To get the operating income, finance cost should be subtracted from the Gross profit? True or False.

True

To get the profit, finance cost should be deducted from the Operating income. True or False?

check

a written order to a bank by a depositor to pay the amount specified in the check from his checking account to the person named in the check.

Purchase requisition

a written request to the purchaser of an entity from an employee or user department of the same entity that goods be purchased.

true

advertising expense appears as a selling expense on the income statement

true

an advantage of using periodic inventory system is that it requires less record keeping than the perpetual inventory system.

Purchase order

an authorization made by the buyer to the seller to deliver the merchandise as detailed in the form.

true

an entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than perpetual inventory system.

cash discounts

businesses give this kind of discount for prompt payment

true

cash discount are called purchase discount from the buyer's POV

purchase discounts

cash discounts in the buyer's point of view

sales discount

cash discounts in the seller's point of view

Merch. inventory (beg) Purchases Less: Purchase Ret & All Purchase Discounts Net Purchases Transportation Net Cost of purchases Goods available for sale (gafs) Less: merch inventory (end) Cost of Sales/Cogs

how to get the Cost of Sales or COGS?

true

if the seller is to shoulder the cost of delivery, the term stated as FOB destination

Source Documents

it contain vital information about the nature and amount of the transactions.

validated deposit slips

it indicates that cash and checks with the supplied details were actually deposited or credited to the account holder.

Gross Profit

it is the difference between the net sales and the cost of sales.

Sales on Account

its cycle is from cash to inventory to accounts receivable and back to cash.

discount period

its is the period covered by the discount

Credit terms or cash on delivery

merchandise may be purchased and sold either on ________ or _________.

false

on the income statemnt of a merchandising concern, profit is the amount by which net sales exceeds operating expenses.

false. perpetual

periodic IS provides up to date amount of inventory on hand

true

perpetual inventory system requires recording the costs for each sale as it occurs.

Sales invoice

prepared by the seller of goods and sent to the buyer. it also specifies the amount of sales, and the transportation and payment terms.

periodic inventory system

primarily used by businesses that sell relatively inexpensive goods and that are not yet using computerized scanning systems to analyze goods sold.

deposit slips

printed forms with depositor's name, account number and space for details of the deposit.

true

purchase returns and allowance is a deduction from purchases.

true

sales returns and allowances is described as contra-revenue account.

true

summing ending merch inventory and cogs sold gives the cost of goods available for sale.

true

taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

true

transportation in is considered a cost of merchandise purchased.

False. transportation out is part of the selling expenses

transportation in is part of the selling expenses. True or false.

false - added

transportation in is treated as a deduction in the cost of goods sold section of the income statement.

false

transportation out is included in the cost of goods sold calculation.

Perpetual and periodic inventory systems

two systems available to merchandising entities to record events related to merchandise inventory.

true t

under the periodic inventory system, cost of goods sold is treated as an account

true

under the periodic inventory system, purchases of merchandise are not recorded in the merch inventory account.

true

under the periodic inventory system, the purchases account is used to accumulate all purchases of merchandise for resale.

true

under the perpetual IS, the cost of merchandise is debited to merchandise inventory at the same time of purchase.

Credit period

when goods are sold on account, this period of time is allowed for payment.

true

when the periodic inventory system is used, a physical inventory should be taken at the end of the fiscal year

true

when the terms of sale include a sales dicount, it usually is advisable for the buyer to pay within the discount period.

Operating Profit / Operating Income

you will get this if the operating expenses are deducted from the gross profit.