AC 210 Exam 2 - Ch. 6

Place the income statement line items in the proper order from the top to bottom.

1. Sales REV, Gross 2. Sales Returns, Allowances and Discounts 3. Sales rev, Net 4. Cost of Goods sold 5. Gross Profit

In what ways are periodic and perpetual systems similar?

Both record a credit to Sales at the time of the sale. Both record a credit to Accounts Payable at the time of the purchase of merchandise on account.

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer.

Debit Accounts Receivable and credit Sales Revenue in the amount of the selling price times the quantity sold Debit Cost of Goods Sold and credit Inventory in the amount of the cost times the quantity sold

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.

add the transportation costs to its Inventory account

What does the gross profit percentage tell you?

A higher ratio means that more is available to cover operating expenses.

Beginning Inventory + Purchases - Ending Inventory = ______.

Cost of Goods Sold on the income statement

In a perpetual system, the entry to record a purchase of merchandise on account includes a _____

credit to Accounts Payable debit to Inventory

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______. (Check all that apply.)

credit to Cash for the amount paid credit to Inventory for the discount amount debit to Accounts Payable for the original cost

Inventory is reported as a(n) ______ on the ______. Multiple choice question. expense

current asset; balance sheet only

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a ______. (Check all that apply and answer from the viewpoint of the buyer.)

debit to Accounts Payable credit to Inventory

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ______. (Check all that apply.)

increase in liabilities increase in assets

Accounts Payable ______.

is credited for purchases made on account is debited when amounts owed are paid

To determine cost of goods sold for the period requires ______.

subtracting ending inventory from the goods available to sell, which is the beginning inventory plus purchases

Which line items are found on a multi-step but not on a single-step income statement

Gross Profit Income from Operations

Why is inventory reported as a current asset?

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

Inventory consists of all ______.

costs needed to get the inventory ready for sale

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ______.

Unchanged

Which of the following are found on the income statement of a merchandiser? (Check all that apply.)

Gross Profit Sales Revenue Cost of Goods Sold

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation. (Check all that apply.)

Assets will decrease. Liabilities will decrease.

Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ______.

3000

In what ways are periodic and perpetual systems similar? (Check all that apply.)

Both record a credit to Accounts Payable at the time of the purchase of merchandise on account. Both record a credit to Sales at the time of the sale.

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue, net)? (Select all that apply.)

Sales Returns Sales Allowances Sales Discounts

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price.

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory

Goods Available for Sale will ______ when sold.

become Cost of Goods Sold on the income statement

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.

contra-revenue; debited

Cost of Goods Sold on the income statement reports the ______.

cost times the quantity of goods sold during the period

The journal entry to record taking a discount when paying for goods previously purchased on account and recorded using the gross method includes a ______.

credit to two asset accounts debit to a liability account

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.)

debit to Accounts Receivable credit to Inventory debit to Cost of Goods Sold credit Sales Revenue

Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?

debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold

Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n) _____.

decrease in assets and liabilities

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______

detect bookkeeping errors detect shrinkage detect theft

Sales Returns and Allowances are reported on the ______.

income statement

Sales returns and allowances ______.

reduce the amount the seller expects to receive from customers are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months are typically recorded after the initial sale when the actual return or allowance occurs

If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.

shipped from the seller's place of business