Ch 5 TF

Ace your homework & exams now with Quizwiz!

The computer has increased greatly the use of the periodic inventory system.

F

The gross profit amount is generally considered to be more informative than the gross profit rate.

F

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after the invoice date to take advantage of the cash discount.

F

A periodic inventory system does not require a detailed record of inventory items.

F

A very small business most likely would have to use the perpetual inventory system.

F

A merchandising company's net income is determined by subtracting operating expenses from gross profit.

T

A quality of earnings ratio significantly less than 1 suggests that a company may be using more aggressive accounting techniques in order to accelerate income recognition.

T

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.

T

Cost of Goods Sold is considered an expense of a merchandising firm.

T

Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

T

Freight-out appears as an operating expense in the income statement.

T

If merchandise costing $5,000, with terms 2/10, n/30, is paid within 10 days, the amount of the purchase discount is $100.

T

If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.

T

In a single-step income only one step is required in determining net income.

T

The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

T

The revenue recognition principle applies to merchandising companies by recognizing sales revenues when the performance obligation is satisfied.

T

Under the periodic system, the purchases account is used to accumulate all purchases of merchandise for resale.

T

When an invoice is paid within the discount period, the amount of the discount decreases Inventory.

T

Cash register tapes provide evidence of credit sales.

F

Sales revenues are only earned during the period cash is collected from the buyer.

F

The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

F

The income statement for a merchandising company presents only two amounts not shown on a service company income statement.

F

The operating cycle of a merchandising company ordinarily is shorter than that of a service company

F

The periodic inventory system provides an up to date amount of inventory on hand.

F

The quality of earnings ratio is calculated as net income divided by net cash provided by operating activities.

F

The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

F

Under the periodic inventory system, cost of goods sold is treated as an account

F

Merchandise is sold for $5,000 with terms 1/10, n/30. If $1,000 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.

T

Sales Discounts and Sales Returns and Allowances both have normal debit balances.

T

Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company.

T

The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.

T

Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Inventory account.

T

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Tru

The normal balance of Sales Returns and Allowances is a credit.

F

When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.

T

With the periodic inventory system, goods available for sale must be calculated before cost of goods sold.

T

Net sales minus cost of goods sold is called gross profit.

T

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

F

Gross profit appears on both the single-step and multiple-step forms of an income statement.

F

Operating expenses include interest expense and income tax expense.

F

Sales allowances and Sales discounts are both designed to encourage customers to pay their accounts promptly.

F

Sales revenue minus operating expenses equals gross profit.

F

The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

T

The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.

T

Retailers and wholesalers are both considered merchandising enterprises

Tru

Gross profit rate is computed by dividing cost of goods sold by net sales.

F

Income from operations appears on both the single-step and multiple-step forms of an income statement.

F

Nonoperating activities include revenues and expenses that are related to the company's main line of operations.

F

Sales Discounts is a contra revenue account to Sales Revenue.

T

Operating expenses are subtracted from revenue for a service enterprise and from gross profit for a merchandising enterprise.

T


Related study sets

Culture and the Environment Final

View Set

Radioactive Decay Vocabulary, Chapter 9, chem 111, Chem 349502

View Set

ACCT 3023 ch1 The development of Financial Acct. and Reporting Standards

View Set

Celiac Disease - Pathophysiology and Etiology

View Set

Chapter 23: conditions occurring after delivery

View Set

Coms 101 Dr. Alban (Liberty University) Exam 1

View Set