ACCTG 201 CH 4

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit theMerchandise Inventory/Accounts Payable/Cash) account and credit the(Cash/Merchandise Inventory/Accounts Payable) account.

Blank 1: Merchandise Inventory Blank 2: Cash

The discount period is the time (before/between) the invoice date and a specified date on which the payment amount owed can be (increased/reduced) because of early payment.

Blank 1: between Blank 2: reduced

A cash discount can be summarized as a discount given to (buyers/creditors/sellers) to encourage them to pay (earlier/later/less/more).

Blank 1: buyers Blank 2: earlier

A sales return refers to merchandise that________return to the___________(customer/seller/creditor) after a sale for a refund of the purchase price or reduction in the amount owed.

Blank 1: customers Blank 2: seller

An invoice is referred to as a bBlank 1Blank 1 b , Incorrect Unavailable invoice for a buyer and as a bBlank 2Blank 2 b , Incorrect Unavailable invoice for the seller.

Blank 1: purchase Blank 2: sales

Sales Discounts is a contra-_________(expense/revenue/asset) account and is increased with a_____________(debit/credit).

Blank 1: revenue Blank 2: debit

Sales is a(n)_______(expense/revenue/asset) account and is reported on the___________(income/balance)____________(statement/sheet).

Blank 1: revenue Blank 2: income Blank 3: statement

Explain what a credit memorandum is by completing the following sentence. When a seller grants an allowance on a previous sale, the____(customer/creditor/seller)issues a credit memorandum to inform the_________(customer/seller) of a credit made to the buyer's Account Receivable in the seller's records.

Blank 1: seller Blank 2: customer

A_________discount benefits a seller through earlier cash receipts and reduced collection efforts.

Cash

Which of the statements below are correct regarding cost of goods sold?

Cost of goods sold is the expense of buying and preparing merchandise.

In the operating cycle for a merchandiser with credit sales, after purchasing merchandise inventory for sale to customers, the next step is to make a_______________.

Credit

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with terms of 1/10,n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $1,400. Debit Cash $1,400.

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

Debit to Cost of Goods Sold for $50 Credit to Merchandise Inventory for $50

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

debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200

On July 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. The required journal entry to record Jo's Market customer's payment on August 6 would be:

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

The cost of merchandise includes: Multiple select question.

shipping purchase cost taxes

which accounts are normally adjusted at the end of the period

supplies, insurance, depreciation, unearned revenues, accrued revenue, accrued expenses, accrued interest, accrued salaries

1. Retailer 2. Wholesaler 3. Merchandiser

1. Buys products from manufacturers or wholesalers and sells them to consumers 2.Buys products from manufacturers and sells them to retailers 3. Earns net income by buying and selling merchandise

Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice date. Multiple choice question.

3/15,n/45

Identify the statements below which summarize what cash discounts are. (Check all that apply.)

A reduced payment applies to the discount period. A buyer views a cash discount as a purchase discount. A seller views a cash discount as a sales discount. Sellers can grant a cash discount to encourage buyers to pay earlier. Cash discounts are described in credit terms.

What is a sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

Determine which statements below are correct regarding merchandise available for sale during a period.(Check all that apply.)

Beginning inventory + Net purchases = Merchandise available for sale Ending inventory + Cost of goods sold = Merchandise available for sale

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.) Multiple select question.

Close expense accounts. Close the dividends account. Close revenue accounts. Close the income summary account.

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)

Close the dividends account. Close expense accounts. Close revenue accounts. Close the income summary account.

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

Cost of goods sold is also called cost of sales. Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is an expense reported on the income statement. Cost of goods sold is used to figure gross profit.

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Cost of goods sold is subtracted from net sales.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 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. (Check all that apply.) Multiple select question.

Credit Merchandise Inventory $500. Debit Cash $1,400. Credit Sales $1,400. Debit Cost of Goods Sold $500.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $500. Debit Cost of Goods Sold $500.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 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. (Check all that apply.)

Credit Sales $7,000. Credit Merchandise Inventory $500. Debit Cash $7,000. Debit Cost of Goods Sold $500.

On Dec. 7, Toys R Fun purchased $1,000 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. Multiple choice question.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

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, by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $686. Credit Accounts Receivable $700. Debit Sales Discounts $14.

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. How will Jo's Market record the customer's payment on June 8?

Debit Cash $980; debit Sales Discounts $20; and credit Accounts Receivable $1,000

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. 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. (Check all that apply.) Multiple select question.

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500. Debit Accounts Receivable $1,400. Credit Sales $1,400.

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. (Check all that apply.)

Debit Merchandise Inventory $100. Credit Cost of Goods Sold $100. Debit Sales Returns and Allowances $400. Credit Accounts Receivable $400.

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Cash $300.

On Jan 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. The seller uses the perpetual inventory system. 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 Jan 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. The seller uses the perpetual inventory system. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer. Multiple choice question.

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

A journal entry for a sale of merchandise on credit will result in all of the following:

Debit to Cost of Goods Sold Debit to Accounts Receivable Credit to Merchandise Inventory Credit to Sales

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.) Multiple select question.

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

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other_____________.

Expense

Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)

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

Review the statements below and select the one that accurately describes a perpetual inventory system.

It is an inventory system that updates accounting records after each purchase and each sale of inventory.

Review the statements below and select the one that accurately describes a periodic inventory system.

It is an inventory system that updates the accounting records for merchandise transactions only at the end of a period.

The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser's balance sheet. Multiple choice question.

Merchandise inventory

Which statement below correctly explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.

Determine which of the following statements about merchandise is correct.

Merchandise is acquired for resale to customers.

Identify the statement below that is the correct definition of "shrinkage".

Shrinkage refers to the loss of inventory due to theft, breakage or deterioration.

Gross profit is computed as net__________minus cost of goods sold.

sales

Which of the following equations correctly identify the cost flow of a merchandising company? Multiple choice question.

Net purchases plus beginning inventory equals merchandise available for sale

How do you compute net income for a merchandiser. Multiple choice question.

Net sales - cost of goods sold - other expenses.

Identify the two types of inventory systems from the choices below.

Perpetual inventory system and periodic inventory system

Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net___________of a product and___________the cost of the goods sold 1. (sales/costs) 2. (adding/subtracting)

Sales;subtracting

Which of the following costs are included in merchandise inventory? (Check all that apply.)

Shipping fees Costs necessary to ready the merchandise for sale Purchase costs

Identify the financial statements of a merchandiser. (Check all that apply.)

Statement of retained earnings Balance sheet Income statement

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.)

The Dividends account is closed to Retained Earnings Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts. Cost of goods sold is closed with the expense accounts. Sales Returns and Allowances is closed with the expense accounts.

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Credit terms of n/15 EOM were printed on an invoice. Explain what this means. Multiple choice question.

The credit terms stand for net 15 days after

Determine which of the definitions below describes gross profit.

The difference between net sales and the cost of the goods sold

Review the following statements and select the one that best describes a discount period. Multiple choice question.

The discount period is the time period in which a discount may be taken by the buyer.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

accrued revenues

revenue earned by providing a good or service, but no cash has been received

Review the statements below and select the one that explains the purpose of a sales discount. Multiple choice question.

They decrease the time that the seller has to wait for payment.

every adjusting entry involves both an income statement and balance sheet account T/F

True

A sales allowance can be described as:

a reduction in the selling price of defective or unacceptable merchandise sold to customers

permanent accounts ex

all balance sheet accounts

step one in accounting cycle

analyze business transactions

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

what happens if accrued revenues are not adjusted

assets and revenues are understated. debit assets and credit revenues

what happens if prepaid expenses are not adjusted

assets are overstated and expenses are understated. debit expenses and credit assets or contra assets

permanents accounts

balances that are carried forward into future accounting periods

what is the two-fold purpose of closing entries

bring all temporary accounts to zero before beginning a new accounting period and bring the retained earnings balance up to date so its account balance is the same amount shown as ending retained earnings on the retained earnings statement and balance sheet

Merchandisers earn net income by (buying/manufacturing)__________and (selling/purchasing)_________merchandise.

buying;selling

revenue recognition principle

companies recognize revenue in the accounting period in which the performance obligation is satisfied

Sales Discounts is a ______ account.

contra-revenue

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

temporary accounts ex

revenue, expenses, dividends

why do we do adjusting entries

ensure that revenue recognition and expense recognition principles are followed

expense recognition principle

expenses (efforts) are matched with revenues (results)

what happens if accrued salaries are not adjusted

expenses and liabilities are understated

what happens to accrued expenses if they are not adjusted

expenses and liabilities are understated. debit expenses and credit liabilities

accrued expenses

expenses incurred but not yet paid in cash or recorded

simple interest equation

face value of note x annual interest rate x time in terms of one year

step five in accounting cycle

journalize and post adjusting entries: deferrals/accruals

step eight in accounting cycle

journalize and post closing entries

step two in accounting cycle

journalize the transactions

what happens to accrued interest if it is not adjusted

liabilities and interest expense are understated and net income and SE are overstated

what happens if unearned revenues are not adjusted

liabilities are overstated and revenues are understated. debit liabilities and credit revenues

accounts that appear on post-closing trial balance

permanent accounts (balance sheet)

step three in accounting cycle

post to the ledger accounts

step nine in accounting cycle

prepare a post-closing trial balance

step four in accounting cycle

prepare a trial balance

step six in accounting cycle

prepare and adjust trial balance

step seven in accounting cycle

prepare financial statements

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of_______________that a company acquires to resell to__________.

products or goods

Merchandise inventory can be described as: (Check all that apply.)

products that a company owns and intends to sell. an asset increased with a debit. an account appearing on a balance sheet of a merchandiser.

The cash operating cycle for a merchandiser begins with cash purchases of merchandise and ends with _____.

receipt of cash

temporary accounts

relate only to a given accounting period

accural-basis accounting

reporting income when it is earned and expenses when they are incurred

cash basis accounting

reporting income when the cash is received and expenses when the cash is paid.

Sales is a(n) ______ account.

revenue