accounting test 2 learnsmarts
Why is inventory reported as a current asset?
Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.
In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation. (Check all that apply.
Liabilities will decrease Assets will decrease
Net Sales Equation
Sales - Sales Discounts - Sales Returns and Allowances
Which of these will require a credit to the inventory account in a perpetual inventory system?
Selling inventory for cash Selling inventory on account
equation for sales revenue
Selling price times the quantity sold
Goods Available for Sale will ______ when sold
become Cost of Goods Sold on the income statement
Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.
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 ______.
debit to Accounts Payable for the original cost credit to Cash for the amount paid credit to Inventory for the discount amount
Merchandisers record revenue when they ______.
fulfill their performance obligations by transferring control of the goods to customers
If Accounts Payable is debited and Cash is credited, then the company is recording a ______.
payment of amounts owed for purchases made on account
Sales revenue equation
price x quantity sold
Sales Revenue reports the ______.
sales price times the quantity of goods sold
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
gross profits are
A subtotal on the income statement and is the amount earned from adding value to the inventory sold
Ending Inventory Equation
Beginning Inventory + Purchases - Cost of Goods Sold
Cost of Goods Sold Equation
Beginning Inventory + Purchases of merchandise - Ending Inventory
Gross Profit = ________ - ___________
COGS- sales revenue
equation of cost of goods sold
Cost times the quantity sold
what is reported on the income statement?
sales revenue, gross profit, cost of goods sold
if the purchasers buys shipping its fob ______
shipping point
What is inventory?
Current asset on the balance sheet available for sale
Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?
The customer received a damaged product, but kept the product and asked for a reduction in the price.
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.
there are product quality issues
