Acct 2110 Chapter 4 T/F
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount.
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A criticism of a single-step income statement is that net income is NOT available for analysis.
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A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570.
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If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $48.
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If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $52.
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If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination
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In a transaction where purchased merchandise has been returned, the buyer will increase the Sales Returns and Allowances account and the seller will increase the Purchases Returns and Allowances account.
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It is usual for the credit period to begin with the date the merchandise is received by the buyer.
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Merchandise inventory shrinkage will increase Merchandise Inventory.
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Net income or loss may appear on the income statement of both a service business and a merchandising business.
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Net sales is equal to sales plus cost of merchandise sold.
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On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold
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On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales
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On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period.
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Purchase discounts reduce sales
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Purchases discounts are discounts given to the seller.
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Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows
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Sales Returns and Allowances is a contra-asset account.
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Sales discounts are granted by the seller to customers for payment at the end of the month.
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Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales
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The document issued by the seller that informs the buyer of the details of sales returns is called a debit memorandum
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Freight in is the amount paid by the seller to deliver merchandise sold to a customer
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To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.
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When merchandise that was sold is returned, the seller decreases accounts payable.
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A buyer who acquires merchandise under credit terms of 1/10, n/30 has 10 days after the invoice date to take advantage of the cash discount.
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A criticism of the single-step income statement is that gross profit and income from operations are NOT readily available for analysis.
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Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller.
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Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise.
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Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer.
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On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.
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Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business.
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Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system.
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Revenue from sources other than the primary operating activity of a business is called other income
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Interest expense is an example of an expense classified under "other expense."
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Merchandise inventory shrinkage will decrease Retained Earnings.
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If cash dividends of $145,000 were declared during the year and the decrease in dividends payable from the beginning to the end of the year was $7,000, the statement of cash flows would report $152,000 in the financing activities section.
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If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/eom
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In a multiple-step income statement, sales will be reduced by sales discounts and sales returns and allowances to arrive at net sales.
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In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
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Merchandise is sold for $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $150. If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $40.
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Sales Discounts is used in accounting for transactions with customers.
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Sales returns are granted by the seller to customers for damaged or defective merchandise.
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The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable
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The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities
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The merchandise inventory account is found on the balance sheet.
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The sales discount account is a contra account to Sales.
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There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method.
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Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made.
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When someone purchases merchandise and incurs the cost of transportation, these costs of purchasing inventory are added to the cost of the inventory.
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When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period.
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When the terms of sale are FOB shipping point, the buyer should pay the transportation charges
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