accounting ch.5

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in

Inventory.

Net income is Income from operations add (less)

Other revenues and gains, Other expenses and losses

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

allowance.

FOB shipping point means that the

buyer pays the freight.

The Sales Returns and Allowances account is classified as a(n)

contra revenue account.

The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are

credit, debit, debit.

The operating cycle of a merchandiser is

generally longer than it is for a service company.

The gross profit rate is computed by dividing gross profit by

net sales.

Net income is gross profit less

operating expenses.

A sales invoice is a source document that

provides evidence of credit sales.

A single-step income statement

reports sales revenues and other revenues and gains in the revenues section of the income statement.

An enterprise which sells goods to consumers is known as a

retailer.

The contra revenue account that normally has a debit balance is

sales returns and allowances.

Gross profit is

sales revenue less cost of goods sold.

Perpetual inventory system records

sometimes do not match up with physical inventory due to theft and data entry errors.

The primary source of revenue for a wholesaler is

the sale of merchandise.

To record the sale of goods for cash in a perpetual inventory system

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

In a perpetual inventory system, the Cost of Goods Sold account is used

whenever there is a sale of merchandise or a return of merchandise sold.

A merchandising company that sells directly to retailers is a

wholesaler.

A company determines the cost of goods sold each time a sale occurs in

a perpetual inventory system only.

As an incentive for customers to pay their accounts promptly, a business may offer its customers

a sales discount.