ACG CH 5

Credit terms

the amount of the cash discount and time period during which it is offered. also indicate the length of time in which the purchaser is expected to pay the full invoice price.

Gross profit

the excess of net sales over the cost of goods sold. net sales-cost of goods sold

accounts receivable

when a sale on account occurs, the seller debits

sales discounts

when cash discounts are taken by customers, the seller debits

merchandise inventory

when customers returns goods, the seller debits

a

In the credit terms of 1/10, n/30, the "1" represents the a. percent of the cash discount. b. number of days in the discount period. c. full amount of the invoice. d. number of days when the entire amount is due.

Profit margin

Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales.

Purchase discount

A cash discount claimed by a buyer for prompt payment of a balance due.

b

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23? (a) $700. (b) $686. (c) $685. (d) $650.

Purchase allowance

A deduction made to the selling price of merchandise, granted by the seller, so that the buyer will keep the merchandise.

Purchase invoice

A document that provides support for each purchase

Sales invoice

A document that provides support for each sale.

Sales discount

A reduction given by a seller for prompt payment of a credit sale.

Purchase return

A return of goods from the buyer to the seller for cash or credit.

Contra revenue account

An account that is offset against a revenue account on the income statement

FOB Shipping Point

Buyer pays freight costs

c

Financial information is presented below: Operating expenses $35,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 140,000 Cost of goods sold 85,000 The gross profit rate would be a .34. b .39. c .32. d .68.

Sales- cost of goods sold

Gross profit equals

Gross profit- operating expenses

Net income equals

b

Operating expenses would include a. freight-out and interest. b. freight-out. c. income tax expense. d. interest expense.

FOB Destination

Seller pays freight costs

c

The gross profit rate is equal to: (a) net income divided by sales. (b) cost of goods sold divided by sales. (c) net sales minus cost of goods sold, divided by net sales. (d) sales minus cost of goods sold, divided by cost of goods sold.

d

The multiple-step income statement for a merchandising company shows each of these features except: (a) gross profit. (b) cost of goods sold. (c) a sales section. (d) All of these are present.

c

To record the sale of goods for cash in a perpetual inventory system: (a) only one journal entry is necessary to record cost of goods sold and reduction of inventory. (b) only one journal entry is necessary to record the receipt of cash and the sales revenue. (c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory. (d) two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.

a

Tony's Market recorded the following events involving a recent purchase of inventory under a perpetual inventory system: Received goods for $40,000, terms 2/10, n/30. Returned $800 of the shipment for credit. Paid $200 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory a. increased by $38,616. b. increased by $38,612. c. increased by $39,400. d. increased by $38,416.

Sales returns and allowances

Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.

b

Under a perpetual inventory system a. there is no need for a year-end physical count. b. accounting records continuously disclose the amount of inventory. c. the account purchase returns and allowances is credited when goods are returned to vendors. d. increases in inventory resulting from purchases are debited to purchases.

c

Which of the following items does not result in an adjustment in the Inventory account under a perpetual system? (a) A purchase of merchandise. (b) A return of merchandise to the supplier. (c) Payment of freight costs for goods shipped to a customer. (d) Payment of freight costs for goods received from a supplier.

a

Which of the following statements about a periodic inventory system is true? (a) Companies determine cost of goods sold only at the end of the accounting period. (b) Companies continuously maintain detailed records of the cost of each inventory purchase and sale. (c) The periodic system provides better control over inventories than a perpetual system. (d) The increased use of computerized systems has increased the use of the periodic system.

c

Which sales accounts normally have a debit balance? (a) Sales discounts. (b) Sales returns and allowances. (c) Both (a) and (b). (d) Neither (a) nor (b).

Perpetual inventory system

a detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand

c

Gross profit will result if: (a) operating expenses are less than net income. (b) sales revenues are greater than operating expenses. (c) sales revenues are greater than cost of goods sold. (d) operating expenses are greater than cost of goods sold.

a

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system? (a) $390,000. (b) $370,000. (c) $330,000. (d) $420,000.

b

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit? (a) $30,000. (b) $90,000. (c) $340,000. (d) $400,000.

Periodic inventory system

an inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period

net sales

company deducts sales returns and allowances and sales discounts from sales revenue in the income statement to arrive at ____

Gross profit rate

gross profit expressed as a percent by dividing the amount of gross profit by net sales

Gross profit rate

gross profit/net sales

accounts payable

is debited to record goods returned by purchaser

merchandise inventory

is debited to record the purchase of inventory on account

merchandise inventory

is debited when the purchaser incurs freight charges

profit margin

net income/net sales

Advantages of a perpetual inventory system

provides better control over inventories. the inventory records show the quantities that should be on hand, the company can count the goods at any time to see whether the amount of goods actually on hand agrees with the inventory records.