Principles of Accounting Ch. 7-Self Review

What is a subsidiary ledger? Give two examples of subsidiary ledgers.

A ledger that contains accounts of a single type. Examples are the accounts receivable ledger and the accounts payable ledger.

Why does a small merchandising business usually need a more complex set of financial records and statements than a small service business?

A merchandising business must account for the purchase and sale of goods and for its merchandise inventory.

What is a sales return? What is a sales allowance?

A sales return results when a customer returns goods and the firm takes them back. A sales allowance results when the firm gives a customer a reduction in the price of the good or service.

Explain how service, merchandising, and manufacturing businesses differ from each other.

A service business sells services; a merchandising business sells goods that it has purchased for resale; and a manufacturing business sells goods that it has produced.

Which accounts are kept in the accounts receivable ledger?

Individual accounts for all credit customers.

Why is it useful for a firm to have an accounts receivable ledger?

It contains detailed information about the transactions with credit customers and shows the balances owed by credit customers at all times.

What is the difference between list price and net price?

List price is the established retail price of an item; net price is the amount left after all trade discounts are subtracted from the list price.

What factors would you consider in deciding whether or not to extend credit to a customer?

Possible factors are payment history, amount of current debt, amount of potential debt (available credit cards), employment history, salary, references from other creditors.

What are four types of credit sales?

Four types of credit sales are open-account credit, business credit card sales, bank credit card sales, and credit card company sales.

If a wholesale business offers a trade discount of 35 percent on a sale of $3,600, what is the amount of the discount?

$1,260

A company that buys $4,000 of goods from a wholesaler offering trade discounts of 20 and 10 percent will pay what amount for the goods?

$2,880

What is a control account?

A control account is an account that serves as a link between a subsidiary ledger and the general ledger because its balance summarizes the balances of the accounts in the subsidiary ledger.

What is a special journal? Give four examples of special journals.

A journal that is used to record only one type of transaction. Examples are the sales journal, the purchases journal, the cash receipts journal, and the cash payments journal.

Which of the following general ledger accounts would appear in a sales returns and allowances journal?

Sales Returns and Allowances, Sales Tax Payable, Accounts Receivable

What account is used to record sales tax owed by a business to a city or state?

Sales Tax Payable is the account used to record the liability for sales taxes to be paid in the future.

Name the two different time periods usually covered in sales tax returns.

The month and the quarter.

Where would you report net sales?

income statement

Which of the following is not a reason to use a sales journal?

increases credit sales

Types of business operations are:

service, merchandising, manufacturing.

What are net sales?

Sales minus sales returns.

What type of transaction is recorded in the sales journal?

Sales of merchandise on credit.