Accounting CH 5 - test 3

what 4 accounts should appear on the post-closing trial balance?

1. asset 2. contra asset 3. liability 4. stockholders equity

What are the 2 systems for accounting for merchandise transactions?

1. perpetual 2. periodic

This term means that the seller pays the freight costs from the shipping point to the buyers final destination:

FOB destination

FOB is part of who's cost of purchasing inventory?

buyers

purchases discounts is a ____ account to purchases

contra

a ___ ___ authorizes a credit to the buyers account receivable.

credit memo

When a business sells merchandise on account, the seller records the sales as a ____(credit/debit) to the accounts receivable, and a _____(credit/debit) to sales.

debit, credit

The balance of the purchases discounts on a periodic inventory system is reported as a ______ from ____ for the period

deduction from purchases

On the income statement for a service business, the revenues from services are reported as what?

fees earned

This term means that the buyer pays the freight costs from the shipping point to the final destination:

free on board shipping point

the excess of net sales over cost of merchandise sold is called ___ ___

gross profit

under the periodic inventory system, the merchandise inventory account ___ (is/is not) kept up to date for purchases and sales

is not

The Inventory Subsidiary Ledger lists individual inventory by ______

item number

inventory on hand is called _______

physical inventory

The liability for the sales tax is incurred when??

when the sale is made

Sales made to customers using credit cards such as a master card or visa are recorded as what?

cash sales

sales returns and allowances are recorded on a ____ account to ____

contra, sales

Each subsidiary ledger is represented in the general ledger by a summarizing account called a ___ ____.

controlling account

merchandise inventory is reported as a _________ on the balance sheet

current asset

Another name for the Accounts Receivable Subsidiary Ledger is ....

customers ledger

What can a buyer use as the basis for recording a return or allowance?

debit memo

a __ __ informs the seller of the amount the buyer proposes to debit to the account payable due the seller

debit memo

purchases returns and allowances are reported as a ____ from ___ for the period and it is a ____ account to purchases

deduction from purchases, contra account

Under the perpetual inventory system, the ending inventory physical count is compared to the balance of the merchandise inventory. the difference is the amount of ___ ___

inventory shrinkage

retailers normally experience some loss of inventory due to shoplifting, employee theft, or errors. In this case, the physical inventory on hand @ the end of the accounting period is usually less than the balance of merchandise inventory. This difference is called ___ ___

inventory shrinkage ( or inventory shortage )

the terms of purchases on account are normally indicated on the _____ that the seller sends the buyer

invoice

merchandise on hand (not sold) at the end of an accounting period is called what?

merchandise inventory

If payment is due by the end of the month in which the sale was made, the terms are written as _____

n/eom

if payment is required on delivery, the terms are cash or ___ ___

net cash

In a _____ Inventory System, the inventory does not show the amount of merchandise available for sale and the amount sold

periodic

In a _____ Inventory System, each purchase and sale of merchandise is recorded in the inventory account & related subsidiary account

perpetual

What is used to determine if the cost of merchandise on hand at the end of the period & the cost of merchandise sold during the period?

physical inventory

discounts taken by the buyer for early payment of an invoice are called ___ ___.

purchases discounts

a merchandise that is returned, or a price allowance for damaged or defective merchandise is called what?

purchases returns and allowances

Revenue from merchandise sales is usually recorded as ____.

sales

to reduce sales revenue, the ____ account could be debited

sales

This occurs when the seller reduces the initial selling price if the merchandise is defective, damaged during shipment, or does not meet the buyers expectations.

sales returns and allowances

____ expenses are incurred directly in the selling of merchandise

selling

the ___ of a sale indicate when ownership of the merchandise passes from the seller to the buyer

terms

In a merchandising business, when the merchandise is sold, its cost is recognized as an expense called what?

the cost of merchandise sold

Which ledger contains all of the balance sheet and income statement accounts?

the general ledger

in the periodic inventory system, when is the cost of merchandise sold recorded?

at the end of the period

if the return or allowance is for a sale on account, the seller usually issues the buyer a ______ ______

credit memo

a period of time that the buyer is allowed to pay:

credit period

the terms for when payments for merchandise are to be made are called the __ __

credit terms

Another name for the Accounts Payable Subsidiary Ledger is...

creditors ledger

In the periodic inventory system, purchases of inventory are recorded in a ____ account and the purchase is ____ (debited/credited) for the amount of the purchase

debited

FOB shipping point costs are added to the cost of the inventory by ____ (crediting/debiting) Merchandise Inventory

debiting

when a sale is made on account, the seller charges tax to the buyer by _____ (crediting/debiting) accounts receivable

debiting

When the seller pays delivery charges, the seller ____(credits/debits) delivery expense or freight out

debits

if a seller prepays the freight, the buyer ____ merchandise inventory

debits

the profit before deducting operating expenses is called what?

gross profit

the ___________ measures how effectively a business is using its assets to generate sales

ratio of net sales to assets

purchase discounts taken by a buyer ____(increase/reduce) the cost of the merchandise purchased

reduce

sales returns and allowances ____ (increase/reduce) sales revenue

reduce

Operating cycles for ____ are usually shorter than for ____ because they purchase goods in a form ready to sale to customers.

retailers, manufacturers

In a merchandising business, when the merchandise is sold, the revenue is reported as _____.

sales

sales discounts reduce ___ ___.

sales revenue

operating expenses are normally classified as either ____ expenses or _____ expenses

selling, administrative

Businesses with ____ operating cycles usually have higher profit margins.

longer

Under the ____ inventory system, inventory shrinkage is not separately determined

periodic

A large number of individual accounts with a common characteristic can be grouped together in a separate ledger called a _____ _____.

subsidiary ledger

The sum of the balances of the accounts in the subsidiary ledger must equal the balance of what?

the related controlling account

office salaries, depreciation of office equipment, and office supplies used are examples of what kind of expenses?

administrative expenses

The operations of a merchandising business involve the purchase of merchandise for sale, the sale of products to customers, and the receipt of cash from customers. This cycle is known as what?

the operating cycle

wholesalers often offer special discounts to government agencies or businesses that order large quantities. these discounts are called ___ ____

trade discounts