ACCT. HW #4

A company granted a sales discount under terms 2/10, n/30. How will recognizing the sales discount affect the balance sheet?

assets and equity decrease

How will the acceptance of sales return for merchandise that had been sold on account affect the balance sheet as related to inventory and cost of goods sold?

assets and equity increase

cost of goods available for sale is allocated between ending inventory and what?

cost of goods sold

Which of the following accounts would be affected when a company sells inventory for cash? - acct. payable - acct. receivable - cost of goods sold - cash - sales revenue - inventory

cost of goods sold, cash, sales revenue, and inventory

The journal entry required to recognize a purchase discount would include what to the inventory and accounts payable accounts?

credit inventory; debit accounts payable

the journal entry required to recognize a purchase discount would include what on the inventory and accounts payable accounts

credit inventory; debit accounts payable

under the perpetual inventory system, the journal entry to recognize the return of inventory previously purchased on account includes what to the inventory and accounts payable accounts?

credit inventory; debit accounts payable

the journal entry required to recognize cash paid for transportation-out costs would include what?

credit to cash account; debit to transport.-out account

when a company issues a note to borrow cash, the journal entry requires what to the cash and notes payable accounts?

debit cash; credit notes payable

the journal entry necessary to recognize inventory shrinkage includes what to the inventory loss account (aka cost of goods sold) and the inventory account?

debit inventory loss; credit inventory

the journal entry required to purchase inventory on account would require what to the inventory and accounts payable accounts?

debit inventory; credit accounts payable

The journal entry necessary to recognize a sales return would include

debit sales; credit acct. receivable

under the perpetual inventory system, the journal entry for sale of merchandise is recorded with a what?

debit to cost of goods sold and credit to the inventory account

The journal entry necessary to recognize cash paid for transportation-in costs would include what?

debit to inventory and credit to the cash account

The journal entry necessary to recognize a purchase discount would include what to the inventory and account payable accounts?

debit to the accounts payable and credit to the inventory account

The entry to recognize inventory shrinkage will cause the balance in the Merchandise Inventory and the cost of goods sold accounts to do what?

decrease Inventory and increase cost of goods sold.

when a company returns merchandise inventory that was previously purchased on account, the balance in the inventory and accounts payable account does what?

decreases

Shrinkage is defined as

decreases in merchandise inventory for reasons other than sales to customers

when a company, using the perpetual inventory system, pays cash to purchase inventory, the event is classified as an asset _______________ transaction.

exchange

The gross margin percentage is calculated by dividing what by what?

gross margin by net sales

periodic inventory systems are most effective in what type of technology environments?

high volume, low environments

Freight costs are titled transportation-_______ when the buyer is responsible for shipping costs and transportation-________ when the seller is responsible.

in; out

gross margin appears on which financial statement?

income statement

The chief advantage of perpetual inventory is what?

inventory control

the entry to recognize inventory shrinkage will cause the balance in the merchandise inventory and the costs of goods sold accounts to do what?

inventory decrease; COGS increase

when a company, using the perpetual inventory system, pays cash to purchase inventory, the balance in what accounts increases?

inventory increases and cash decreases

when a company accepts a return of merchandise inventory that had previously been sold on account the balances of the inventory and cost of goods sold accounts do what?

inventory increases, cost of goods sold decreases

Green Company purchased merchandise inventory under terms FOB shipping point. How would recognizing the freight costs which were paid in cash affect Green's ledger accounts?

inventory would increase and the cash account would decrease

What appears on the balance sheet?

merchandise inventory and cash

When a company pays cash for selling and administrative costs what happens?

net income decreases and expenses increase

The cost of shipping inventory to customers after it has been sold will do what to the cost of inventory?

not effect: the cost of transport/shipping and handling is included in product costs

Cash paid to purchase inventory will appear in which section of the statement of cash flows?

operating activities

Advances in technology have spurred the growth of what inventory system?

perpetual inventory system

what appears on the income statement?

sales revenue, cost of goods sold, gross margin, operating exp. and net income

Merchandising businesses generate revenue by what?

selling goods to customers

Perpetual inventory system is what?

the accounting method which the amt. of cost of goods sold is recorded for each sale of inventory; the inventory acct. is increased and decreased with each purchase and sale of merchandise.

The terms 1/20, n/45 means what?

the buyer will receive a 1% discount if payment is made within 20 days; otherwise the full payment is due in 45 days

The formula for gross profit is sales revenue minus what?

the cost of goods sold

Period costs are normally expensed in the period of?

when the inventory is sold

Smith Company received a purchase allowance (reduction in price) for inventory that was damaged. The inventory was originally purchased on account. Which of the following shows how the allowance affects the balance sheet?

Assets and Liabilities will decrease

How does recognizing a cash discount on a purchase affect the balance sheet?

Assets and Liabilities will decrease and Equity will not be affected.

Kilgore Company sold land that had originally cost $80,000 for $92,000 cash. The journal entry necessary to record this transaction would include what?

Credit to land and gain on sale of land; debit to cash

Cost of goods available for sale minus the cost of what equals the cost of good sold?

Merchandise inventory

How will recognizing transport.-in costs that are paid in cash affect the balance sheet?

No affect on total assets, stockholder's equity, nor liabilities

Which of the following items are added to beginning inventory in order to determine the cost of goods available for sale?

Purchases and Transport-in

How will recognizing inventory shrinkage affect the income statement?

Rev. is not affected; Exp. and NI will both decrease

Green Company sold merchandise inventory under terms of FOB destination. How would recognizing the freight costs which were paid in cash affect Green's accounts?

The cash account would decrease and the inventory wouldn't be affected

How will recognizing transport.-out costs that are paid in cash affect the balance sheet?

Total assets and stockholder's equity will decrease; liabilities are not affected

T/F: the amounts of ending inventory and cost of goods sold reported in the financial statements will be the same regardless of whether a company uses the perpetual or periodic inventory systems.

True

When a company, using the perpetual inventory system, purchases inventory on account, the balance in what happens to affected accounts or reports?

accounts payable and inventory increases

period costs are also called what?

administrative and selling costs

Period cost includes what?

administrative salaries, property insurance, and the cost of delivering inventory that has been sold to customers

Merchandise inventory is what type of account?

asset