acct exam 2

Put in order --> prepare merchandise for sale collect cash from customers on account make credit sales to customers purchase merchandise monitor & service account receivable

1. purchase merchandise 2. prepare merchandise for sale 3. make credit sales to customers 4. monitor and service account receivable 5. collect cash from customers on account

operating cycle for a merchandiser

1. purchases 2. merchandise inventory 3. credit sales 4. accounts receivable 5. cash collection

each sales transaction for a seller of merchandise involves 2 parts

1. revenue recorded (asset increased) from a customer 2. cost of goods sold incurred (asset decreased) to a customer

regarding cost of goods sold?

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

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the _________ account and credit the _______ account

merchandise inventory/cash

net purchase + beginning inventory = __________________

net purchase + beginning inventory = merchandise available for sale

net sales - cost of goods sold = ___________ - expenses = ___________

net sales - cost of goods sold = gross profit - expenses = net income

identify the part in [ ] --> 5/[7,n]/20

number of days discount is available

shipping term: FOB destination ownership transfers at: _____________ goods in transit owned by: seller transportation cost paid by: seller

ownership transfers at: destination

shipping term: FOB shipping point ownership transfers at: ____________ goods in transit owned by: buyer transportation cost paid by: buyer

ownership transfers at: shipping point

merchandise returned by the purchaser to the supplier

purchase return

An invoice is referred to as a _________ invoice for a buyer and as a _______ invoice for the seller

purchase/sales

The discount period is the time between the invoice date and a specified date on which the payment amount owed can be _________ because of early payment.

reduced

sales is a _______ account

revenue

Sales Discounts is a contra ________ account and is increased with a _______.

revenue/debit

Sales is a ________ account is reported on the __________.

revenue/income statement

_________-___________= net income

revenues - expenses = net income

Gross profit is computed as net ______ minus cost of goods sold

sales

_______= cost of goods sold + gross profit

sales = cost of goods sold + gross profit

describe a perpetual inventory system.

It is an inventory system that continually updates accounting records for merchandise transactions.

what is merchandise inventory?

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

what costs are included in merchandise inventory?

Taxes assessed on the merchandise Purchase costs Costs necessary to ready the merchandise for sale Shipping fees charged by the vendor

A purchase return refers to merchandise a ________ purchased, but then returns to the _________ for a refund of the purchase price or reduction in the amount owed.

buyer/seller

A cash discount can be summarized as a discount given to ________ to encourage them to pay _______.

buyers/earlier

Merchandisers earn net income by ________ and _______ merchandise.

buying/selling

A _______ discount benefits a seller through earlier cash receipts and reduced collection efforts.

cash

Sales Discounts is a ______ account.

contra revenue

cost of good sold = ____________ + ___________ - _____________

cost of good sold = merchandise inventory beginning + total cost of merchandise purchase - merchandise inventory ending

identify the part in [ ] --> 8/54,n/[11]

credit period

A sales return refers to merchandise that ________ return to the ________ for a refund of the purchase price or reduction in the amount owed.

customers/seller

When a seller grants an allowance to a customer for defective goods that were purchased on credit and that were not returned, the seller records a debit to the __________ and _______ account.

sales returns/allowances

Gross profit is calculated by taking the net ________ of a product and ________ the cost of the goods sold.

sales/subtracting

_______(shipping point) --> ____________ --> ___________(destination)

seller (shipping point) --> goods in transit --> buyer (destination)

shipping term: _____________ ownership transfers at: destination goods in transit owned by: seller transportation cost paid by: seller

shipping term: FOB destination

shipping term: _____________ ownership transfers at: shipping point goods in transit owned by: buyer transportation cost paid by: buyer

shipping term: FOB shipping point

total amount bought - amount returned = __________

total amount bought - amount returned = amount remaining

shipping term: FOB shipping point ownership transfers at: shipping point goods in transit owned by: buyer transportation cost paid by: ___________

transportation cost paid by: buyer

shipping term: FOB destination ownership transfers at: destination goods in transit owned by: seller transportation cost paid by: __________

transportation cost paid by: seller

What is a purchase return?

A purchase return refers to merchandise a buyer purchases, but then returns to the seller.

What is a sales return?

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

Explain how to determine gross profit on an income statement

Cost of goods sold is subtracted from net sales.

On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100 Credit Merchandise Inventory $100.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment

Debit Accounts Payable $350. Credit Merchandise Inventory $7. Credit Cash $343.

Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination. Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual inventory system to record the freight charges.

Debit Delivery Expense Credit Cash

How do you compute net income for a merchandiser

Net sales - cost of goods sold - other expenses.

describe gross profit

Net sales minus cost of the goods sold

Identify the two types of inventory systems

Perpetual inventory system and periodic inventory system

definition of shrinkage

Shrinkage is the term used to refer to the loss of inventory due to theft or deterioration.

Credit terms of 1/10, n/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/60 were printed on an invoice. Explain what this means.

The credit terms stand for net 60 days.

describes a discount period

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

explain the purpose of a sales discount

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

A purchase allowance can be described as

a reduction in the cost of defective or unacceptable merchandise that a buyer acquires

A sales allowance can be described as

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

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

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

A journal entry for a sale of merchandise on account will result in

a. Credit to Merchandise Inventory b. Credit to Sales c. Debit to Cost of Goods Sold d. Debit to Accounts Receivable

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

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

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

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

why a seller would give a sales allowance?

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

Abed Mart bought $1000 worth of merchandise with a 3% discount, they returned $700 amount remaining? discount? cash payment?

amount remaining 1000 - 700 = $300 discount 300 X 3% = $9 cash payment 300 - 9 = $291

___________ - ___________ = cash payment

amount remaining - discount = cash payment

_________ X ___________ = discount

amount remaining X discount percent = discount

Merchandise inventory that is available for sale is a(n) ______ and reported on _______. Merchandise that is sold during the period is a(n) _________ and reported on the _________.

asset/balance sheet/expense/income statement

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

identify the part in [ ] --> [2]/10,n/30

discount percent

To compute net income for a merchandiser, start with net sales, subtract cost of goods sold and subtract other _________.

expenses

shipping term: FOB shipping point ownership transfers at: shipping point goods in transit owned by: _____________ transportation cost paid by: buyer

goods in transit owned by: buyer

shipping term: FOB destination ownership transfers at: destination goods in transit owned by: __________ transportation cost paid by: seller

goods in transit owned by: seller

Merchandise consists of ______ that a company acquires to resell to _________.

goods/buyers