CHAPTER 19 TRUE/FALSE REVIEW
When a customer receives credit terms of 1/10, n30, the sale invoice amount is reduced 10% if the amount owed is paid within ten days.
FALSE - 1/10 means that the sales invoice amount is reduced 1% (NOT 10%) if the amount owed is paid within ten days.
Regardless of when merchandise is sold, revenue should be recorded when cash is received.
FALSE - According to the "Realization of Revenue" accounting concept (learned in Accounting 1), revenue must always be recorded AT THE TIME THE SALE TAKES PLACE, NOT necessarily when the corporation gets paid.
Sales discounts are recorded directly in the Sales account as a debit to Sales.
FALSE - Sales is usually only debited during the closing entry process. A sales discount is recorded in its own separate CONTRA account, Sales Discount, which would have a normal DEBIT balance.
When state regulations require that sales tax be paid only on actual sales realized, the reduction in sales tax is calculated by multiplying the original total accounts receivable amount by the sales discount rate.
FALSE - The sales tax reduction and the sales discount are two separate calculations!! FIRST, you must calculate the sales discount (original basic price X SALES DISCOUNT PERCENTAGE). SECOND, only AFTER you calculate the sales discount, you then must multiply the sales discount X the SALES TAX PERCENTAGE. This will result in the SALES TAX REDUCTION.
When a sales discount transaction occurs, the sales tax reduction is recorded as a credit to Sales Tax Payable.
FALSE - The sales tax reduction is recorded as a DEBIT to Sales Tax Payable. A reduction in sales tax means that the corporation is giving up, or forfeiting, the sales tax. When you are giving a customer a discount, you are not selling the amount of the discount. You cannot therefore collect sales tax on something you are not selling. Since Sales Tax Payable, a liability, has a normal CREDIT balance, you must therefore DEBIT Sales Tax Payable if you are giving up, reducing, adjusting, or forfeiting the sales tax.
Because Sales Discount is a contra account to Sales, it has a normal credit balance.
FALSE - a contra normal balance is always the OPPOSITE of the normal balance of its related account. If Sales has a normal credit balance, then Sales Discount (its contra account) must have a normal DEBIT balance.
A sales invoice is the source document for journalizing a sales on account transaction.
TRUE
All sales of merchandise on account are recorded in a sales journal.
TRUE
Sales returns and allowances is a contra account to sales because it ultimately reduces the amount of revenue earned by a corporation.
TRUE
The amount of sales tax charged to each customer is recorded as a liability because the corporation owes the sales tax to the state government.
TRUE
The source document for a sales returns and allowance transaction is a credit memorandum (CM).
TRUE
When a correcting entry is journalized to record changes affecting only customer accounts, the general ledger account Accounts Receivable is not used.
TRUE - If the ONLY error was in the name of the customer account, it is not necessary to make any changes to the "parent" Accounts Receivable. CORRECT, BUT DO NOT OVER-CORRECT!!!
The best order to post special journals is: 1) sales, 2) purchases, 3) general, 4) cash receipts, and 5) cash payments.
TRUE - Post in REVERSE alphabetical order.
In some states, certain customers do not have to pay sales tax.
TRUE - remember though, a corporation cannot declare itself "tax exempt." Any individual or corporation wishing to be considered "tax exempt" must first obtain approval from the state.
