Chapter 5 True and False

A discount offered the purchaser of goods as a means of encouraging payment before the end of the credit period is known as a bank discount.

False

After the adjusting and closing entries have been recorded and posted, the general ledger accounts that appear on the balance sheet have no balances

False

Any merchandise inventory shrinkage is normally debited to the merchandise inventory account.

False

Expenses incurred directly and entirely in connection with the sale of merchandise are called administrative expenses

False

If the seller is to absorb the cost of delivering the goods, the terms are stated FOB (free on board) shipping point

False

In a perpetual inventory system, purchases of merchandise are recorded in the purchases account

False

Revenue from sources such as income from interest, rent, dividends, and gains resulting from the sale of fixed assets is classified as income from operations

False

The accounting cycle for a merchandising business is significantly different from that of a service business

False

The liability for the sales tax is incurred at the time the seller receives payment form the buyer

False

The physical inventory taken at the end of the period is normally larger than the amount of the balance of the merchandise inventory account

False

The traditional balance sheet arrangement of assets on the left-hand side iwth the liabilities and stockholders' equity on the right-hand side is called the report form

False

Credit terms of "2/10, n/30" mean that the buyer may deduct 2% of the amount of the invoice if payment is made within 10 days of the invoice date.

True

Gross profit is not calculated in the single-step form of income statement

True

In a periodic inventory system, no attempt is made to record the cost of merchandise sold at the date of the sale

True

The chart of accounts for a merchandising business will differ from that of a service business

True

The closing entries are recorded in the journal immediately following the adjusting entries

True

The excess of gross profit over total operating expenses is called income from operations

True

The purchases returns and allowances are credited to Merchandise Inventory

True

The single-step form of income statement has the advantage of being simple, and it emphasizes total revenues and total expenses as the factors that determine net income

True

The two main systems for accounting for merchandise held for sale are called periodic and perpetual

True