AC 210 Chapter 6 Terms
Which of the following items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)?
Sales Returns Sales Allowances Sales Discounts
Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will
be split between cost of goods sold and ending inventory
Cost of Goods Sold on the income statement reports the
cost times the quantity of goods sold during the period
Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n)
decrease in assets and liabilities
FOB _____ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business. Multiple choice question.
destination
The seller of inventory pays for shipping if the shipping terms are FOB
destination
What does FOB shipping point mean?
goods are owned by the buyer when they leave the seller's place of business
Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n)
increase in assets increase in liabilities
Net Sales on an income statement equals Sales Revenue
minus Sales Returns, Allowances and Discounts
Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory
only in a perpetual system
Which of the following should be debited to Inventory?
purchases of merchandise on account freight-in if shipped FOB shipping point
A multistep income statement is useful to financial statement users because it ______.
separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______
there are product quality issues
FOB destination means that goods are owned by the buyer as soon as
they arrive at the buyer's place of business
True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers. True false question.
False
Beginning Inventory + Purchases =
Goods available for sale
__________ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales _________
Net; Discount
Place the income statement line items in the proper order from the top to bottom
Sales Revenue, gross Sales return, Allowances and Discount Sales Revenue, net Cost of Goods Sold Gross Profit
The entry to record the purchase of inventory on account causes
an increase in assets and liabilities
Sales returns and allowances
are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months are typically recorded after the initial sale when the actual return or allowance occurs reduce the amount the seller expects to receive from customers
Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund. Multiple choice question.
contra revenue; debited
When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a ______.
credit to Cash for the amount paid debit to Accounts Payable for the original cost credit to Inventory for the discount amount
XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry
liabilities will be overstated assets will be overstated
If Accounts Payable is debited and Cash is credited, then the company is recording a
payment of amounts owed for purchases made on account
If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is
received by the customer
A benefit of the _____ inventory system is that inventory shrinkage from theft, fraud and error is able to be estimated.
perpetual
Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?
Alpha
Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?
Breyer Company should include the $4,000 in its inventory.
Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to
Inventory
In a perpetual system, the ___________
Inventory
Inventory account consists of all
costs needed to get the inventory ready for sale
companies sell goods that they have produced.
Manufacturing
Inventory consists of the purchase price
plus freight-in
The Inventory account may be credited for
purchase returns and allowances
Using a perpetual inventory system, what is recorded when a customer returns a product and gets the cash back and the product is put back on the store shelf to be resold?
A debit to Sales Returns & Allowances and a credit to Cash; and a debit to Inventory and a credit to Cost of Goods Sold
How does a company record the $1,000 purchase of merchandise on account with discount terms of 2/10,n/30?
Inventory is increased by $1,000 and is later reduced if payment is made within the discount period.
True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.
True
___________ is classified as a(n) _________ asset and reports the amount of merchandise available to sell.
Inventory, Current
The Cost of Goods Sold equation is
CGS = Beginning Inventory + Purchases of merchandise - Ending Inventory
Beginning Inventory + Purchases - Ending Inventory =
Cost of Goods Sold on the Income Statement
Inventory is reported as a
Current Asset, Balance Sheet
Sales Returns and Allowances are reported on the
Income Statement
Which line items are found on a multi-step but not on a single-step income statement.
Income from Operations Gross Profit
FOB ____ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business. Multiple choice question.
Shipping point
Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable.
The customer received a damaged product, but kept the product and asked for a reduction in the price.
In which of these situations would a merchandiser record revenue?
The obligation has been fulfilled and control of the goods has been transferred to the customer. Goods were sent FOB Shipping Point but have not yet arrived at the buyer's place of business.
In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will
add the transportation costs to its Inventory account