Accounting for Purchases and Cash Payments

A(n) _____________________ is a reduction from the list or catalog price offered to different classes of customers.

trade discount

Special discounts from list prices, granted by manufacturers to different classes of customers, are known as

trade discounts.

A source document prepared by the seller that lists the items shipped, their cost, and the method of shipment is commonly referred to by the seller as a purchase invoice.

False

A written order by a buyer for merchandise or other property specified in a purchase requisition is known as a purchase invoice.

False

An invoice is never subject to both trade and cash discounts.

False

FOB shipping point means free on board at destination of the shipment.

False

If the terms specified on an invoice are 2/10, n/30, this means that a discount of 2% will be allowed if payment is made within 30 days from the date of the invoice.

False

Major documents used in the purchasing process are the purchase requisition, purchase order, receiving report, and sales invoice.

False

Merchandise inventory at the beginning of the period minus purchases plus merchandise inventory at the end of the period equals cost of goods sold for the period.

False

Postings to the accounts payable ledger should be made at the end of the month.

False

The first step in the purchasing process involves preparing a purchase order.

False

The purchases discounts account is debited for cash discounts to customers.

False

______________________is an account used to record transportation charges on merchandise purchases.

Freight-In

The account to which transportation charges on incoming merchandise are generally entered is

Freight-In.

___________________________ tells management the amount of sales dollars available to cover expenses after covering the cost of goods sold.

Gross profit

Trade discounts represent a reduction in the price of the merchandise and should not be entered in the accounts of either the seller or the buyer.

True

When the merchandise is received, a receiving report indicating what has been received is prepared.

True

A(n) ________________________________ is a separate ledger containing an individual account for each supplier.

accounts payable ledger

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

accounts payable ledger.

A discount offered as an inducement for prompt payment of an invoice is called a(n)

cash discount.

A summary accounts payable account, called a(n) ________________________________ , is maintained in the general ledger.

controlling account

Goods available for sale minus ending inventory equals ___________________________ .

cost of goods sold

Merchandise inventory available at the beginning of the period plus cost of goods purchased minus merchandise inventory at the end of the period equals

cost of goods sold.

(Appendix) A purchase was made for $200 on account with credit terms of 2/10, n/30. The purchase was recorded using the net-price method. If payment is made 25 days later, the entry to record the payment will be to

debit Accounts Payable for $196, debit Purchases Discounts Lost for $4, and credit Cash for $200.

The entry to record the purchase on account of merchandise for resale under the periodic inventory system includes

debiting Purchases and crediting Accounts Payable.

Net sales minus cost of goods sold equals__________________________.

gross profit

A printed price of a manufacturer or wholesaler that is subject to trade discounts is called

list price.

(Appendix) When the net-price method of recording purchases is used, the debit to Purchases is for the

mount of the invoice less available cash discounts.

The cost of merchandise purchased during the period less any discounts granted by suppliers and amounts returned to suppliers and amounts of any allowances made by suppliers is called

net purchases.

A written order by a buyer for merchandise or other property specified in a purchase requisition is known as a

purchase order.

A form used to request the purchase of merchandise or other property is a(n) ___________________________.

purchase requisition

A form used to request the responsible person or department to purchase merchandise or other property is known as a

purchase requisition.

A source document prepared by the seller that lists the items shipped, their cost, and the method of shipment is commonly referred to by the seller as the

sales invoice.

The ________________________________________ is an alphabetic or numeric listing of supplier accounts and balances, usually prepared at the end of the month.

schedule of accounts payable

A list showing the amount due to each supplier as of a specified date is known as the

schedule of accounts payable.

(Appendix) The purchases discounts lost account is only used with the gross-price method of recording purchases.

False

A form used to request the purchasing department to purchase merchandise or other property is known as a purchase order.

False

A schedule of accounts payable is prepared from the list of accounts in the accounts receivable ledger.

False

The first document created in the purchasing process normally is the purchase requisition.

True

The supplier or vendor is the person or firm from whom the merchandise or other property is ordered.

True

Assume the gross amount of an invoice is $200 and a trade discount of 10% is allowed. The amount to be entered in the accounting records would be

$180.

An invoice of $237.50 dated April 2 is subject to credit terms of 2/10, n/30. The amount to be paid if the invoice is paid on or before April 12 is

$232.75.

An invoice of $237.50 dated April 2 is subject to credit terms of 2/10, n/30. If the invoice is paid on April 14, the amount to be paid would be

$237.50.

Assume the gross amount of an invoice is $200 and a discount of 20% is allowed. The amount of the trade discount totals

$40.

Assume the gross amount of an invoice is $100 and a discount of 20% is allowed. The net amount is

$80.

An invoice in the amount of $916 is subject to a trade discount of 10% and credit terms on 3/10, n/30. If the invoice is not paid within the discount period, the amount that would be paid to satisfy the invoice would be

$824.40.

An invoice in the amount of $916 is subject to a trade discount of 10% and credit terms of 3/10, n/30. The amount of the trade discount would be

$91.60.

Which of the following credit terms allows a discount of 2% if payment is made within 10 days with the total amount of the invoice due within 60 days? 2/10, EOM/60 2/10, n/60 10/2, n/60 2/10, n/30

2/10, n/60

Which of the following credit terms allows a discount of 3% if payment is made within 15 days from the date of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from its date? 3/EOM, n/30 15/3, n/30 3/15, n/30 3/15, EOM

3/15, n/30

After the posting of the accounts payable ledger is completed, the total of the accounts payable ledger balances should equal the balance of which of the following general ledger accounts?

Accounts Payable

When the transportation charges are paid by the seller, merchandise is shipped ____________________________.

FOB destination

Which of the following indicates that the seller must pay all transportation costs?

FOB destination

When merchandise is shipped _________________________ , the freight costs are paid by the buyer.

FOB shipping point

Which of the following indicates that the purchaser will pay the transportation costs?

FOB shipping point

Merchandise acquired for resale to customers requires a debit to _______________.

Purchases

(Appendix) If purchases are recorded at the net amount, assuming that all available cash discounts will be taken, the net-price method of recording the purchase has been used.

True

A schedule of accounts payable is used to prove that the sum of the accounts payable ledger balances equals the Accounts Payable balance in the general ledger.

True

A trade discount is often offered by wholesalers.

True

After the posting of the accounts payable ledger and the general ledger is completed, the total of the accounts payable ledger balances should equal the Accounts Payable balance in the general ledger.

True

An account number in the Posting Reference column of the general journal indicates that the account has been posted to the general ledger.

True

Discounts from quoted prices which are contingent on prompt payment of invoices, within a stated discount period, are called cash discounts.

True

FOB destination means free on board at the destination of the shipment.

True

For merchandising businesses, the term "purchases" refers only to merchandise acquired for resale.

True

Freight-In is an adjunct-purchases account to which transportation charges on merchandise purchases are debited

True

Gross profit is a measure of the amount of sales dollars available to cover expenses after covering the cost of the goods sold.

True

If the merchandise received is damaged or unsatisfactory, an adjustment may be made that is referred to as an allowance.

True

If the terms of an invoice dated April 10 are 3/10, n/30, the invoice must be paid on or before April 20 in order to be entitled to a discount.

True

In entering in the books an invoice that involves a trade discount, the amount to be used is the net amount after the trade discount is subtracted.

True

Purchases Discounts is a contra-purchases account used to record cash discounts allowed on purchases.

True

Purchases Returns and Allowances is a contra-purchases account.

True

Purchases Returns and Allowances is the contra-purchases account to which purchases returns and purchases allowances are credited.

True

Special discounts on list prices granted to different classes of customers are known as trade discounts.

True

The terms on an invoice are 4/15, n/30. This means that

a discount of 4% will be allowed if payment is made within 15 days from the date of the invoice.