ch 4&5

A Purchases account is not needed under a periodic inventory system.

false

A balance sheet approach to estimating bad debt expense is not permitted under GAAP (Generally Accepted Accounting Principles).

false

During periods of stable purchase prices, FIFO produces the highest ending inventory relative to the other inventory costing methods.

false

Sales discounts decrease the cost of inventory acquired.

false

Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur.

true

What effects on a retail store's accounting equation occur when it records merchandise purchased for cash, assuming the use of a perpetual inventory system?

No Net Effect

If a company estimates its bad debt expense on the basis of a receivables aging, the balance in the Allowance for Doubtful Accounts account will not affect the amount of the end-of-period adjusting entry for bad debts.

false

Selling on credit protects a company from the risk that some of its receivables will never be collected.

false

The account, "Allowance for Doubtful Accounts" is an expense account (the cost of making bad credit sales) that is reported on the income statement.

false

The lender of a note recognizes a note payable on the balance sheet and interest expense on its income statement.

false

Under a perpetual inventory system, each time goods are purchased, the inventory account is transferred to sales revenue.

false

Under the LIFO method of inventory costing, the units in the ending inventory represent the most recent purchase(s).

false

Ending inventory is equal to the cost of items on hand plus

merchandise in transit sold to customers with terms FOB destination.

At the year-end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of

the seller

Cost of goods sold is the difference between costs of goods available for sale and ending inventory.

true

Cost of goods sold represents an outflow of a resource, inventory, which is caused by the sale of products.

true

For a merchandising company, the cost of goods sold is subtracted from net sales to arrive at gross profit.

true

The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.

true

The higher the accounts receivable turnover the better because it indicates that the company is more quickly collecting cash (through sales).

true

The inventory turnover ratio is defined as cost of goods sold divided by average inventory.

true

The lender of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement.

true