ACC 201 - Chapter 6

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

- Gross Profit - Income from operations

The entry to record the purchase of inventory on account causes ______

An increase in Assets and Liabilities

The Cost of Goods Sold Equation is ______

Beginning Inventory + Purchases - Ending Inventory = COGS

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

Debit to a liability Credit to Two Asset Accounts.

Merchandisers record revenue when they ______.

Fulfill their performance obligations by transferring control of the goods to customers

Which of the following are found on the income statement of a merchandiser?

Gross profit, Cost of Goods Sold, and Sales Revenue.

Which are true regarding recording purchases with discount terms using the net method?

If the purchase is paid within the discount period, Accounts Payable is debited and Cash is credited for the discounted cost. The purchase is first recorded at the discounted cost.

Sales Returns and Allowances are reported on the ______

Income Statement.

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______.

Inventory, accounts payable.

On May 1, Doormart received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormart record the sale?

May 3. ( The shipping terms were FOB shipping point)

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

Received by the customer.

Surfshack Corp. buys surfboards, wetsuits, and surf wax from Rip to Shreds, Inc. for sale to consumers. What type of company is Surfshack Corp?

Retail merchandiser.

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

There are product quality issues.

The journal entry to record the payment within the discount period for goods previously purchased on account and recorded using the net method causes _____.

Total liabilities and asset to decrease.

Boopsie Agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debit to Cost of Goods Sold and a credit to Cash. As a result, ______.

- stockholders' equity is understated - liabilities are understated - assets are understated

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 ______.

3,000

Sales returns and allowances ______.

- Recording actual sales returns and allowances as they occur. - 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.

Which of the following items are netted against Sales Revenue to arrive at Net Sales

- Sales returns, sales discounts, sales allowances.

FOB destination means that goods are owned by the buyer as soon as ______.

They arrive at the buyer's place of business.

A multistep income statement is useful to financial statement users because it ______.

- separates cost of goods sold from other operating expenses, which allows the calculation of gross profit - separates income statement items into meaningful components

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

False. (Gross profit is a subtotal, not an account, found on the income statement)

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

Increase in assets and liabilities.

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.

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True (COGS includes all of the products together.)

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______

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

Net Sales on an income statement equals Sales Revenue ______.

minus Sales, Returns, Allowances and Discounts.

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

1. Sales Revenue, gross 2. Sales returns, allowances, and discounts. 3. Sales Revenue, net. 4. Cost of Goods Sold 5. Gross Profit.