Chapter 6 ACCT 2010

periodic inventory system

- Records are updated only at the end of the accounting period accounting period = 12 months?

The complexity that arises from a bundle sale of a product and service contract together for a single price is the seller __________.

- has to determine how to split the price - fulfills its performance obligations at different times

Put the 5-step revenue model for a bundle sale in its proper order

1. Identify the contract 2. Identify the seller's performance obligations 3. Determine the transaction price 4. Allocate the transaction price to each performance obligation in the bundle set 5. Recognize revenue when (or as) each performance obligation is satisfied

Purchase returns and allowances

Are accounting for with a credit to inventory and a debit to cash or AP

Purchase transactions affect the ____

Balance sheet and not the income statement

Goods Available for Sale will ___________ when sold.

Become cost of goods sold on the income statement

Inventory shrinkage can be determined by comparing the

Beginning inventory + purchases - CoGS to the actual inventory balance from a physical count

Cost of Goods Sold equation is

Beginning inventory + purchases - ending inventory

beginning inventory + purchases - ending inventory =

Cost of goods sold on the income statement

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ____

Credit to inventory Debit to cost of goods sold

X Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms 2/10, n/30. If the customer pays within the disocunt period and takes the discount, X will record a journal entry that includes _____.

Debit to sales revenue of $40 Debit to cash of $1960 Credit to accounts receivable of $2000

The entry to record a sales return that results in the issuing of a gift card is recorded with a debit to Sales Revenue and a credit to ____________ ____________ and also a debit to _______________ and a credit to Cost of Goods Sold.

Deferred revenue; inventory

What are reported on the income statement

Gross profit Sales revenue Cost of goods sold

Benefit of the perpetual inventory system

Inventory shrinkage from theft, fraud and error is able to be estimated

Accounts Payable _____

Is debited when amounts are paid Is credited for purchases made on account

Gross profit equals

Net sales - COGS

Which line item would be found on a merchandiser's balance sheet and not on a service firm's?

Sales revenue Cost of goods sold

Income statement line items in order

Sales revenue, gross Sales returns, allowances and discounts Sales revenue, net Cost of goods sold Gross profit

Multi step income statement

Shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operation of the company

What are the two stages of accounting for a purchase discount?

The inventory account is later reduced if payment is made within the discount period The purchase is first recorded at full cost

gross profit

a subtotal on the income statement and is the amount earned from adding value to the inventory sold

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a _____.

credit cash debit inventory

using a perpetual inventory system the entry to records a sale of merchandise it must also record ___

decrease in inventory

Sales discounts should appear in the financial statements as a _________.

deduction from sales

the entry to record the purchase of inventory on account causes

increase in assets and liabilities

Any costs incurred to get the merchandise into a condition and location ready for sale should be debited to _________________

inventory

In a perpetual system, the _____ account is debited when a company purchases merchandise on account

inventory

On May 1, Doormat received an order from a customer. The goods were shipped FOB shipping point on May 3. The customer received the goods on May 5 and paid for the merchandise on June 1. When should Doormat record the sale?

may 3

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is_______.

received by the customer

Manufacturing companies

sell goods that have been made themselves

Merchandising companies

sell goods that have been obtained from a supplier

Service companies

sell services rather than physical goods

Cost of Goods Sold will show a higher balance during the accounting period if

the perpetual system is used

FOB destination

the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyers place of business

in what ways are periodic and perpetual system similar

Both record a credit to sales at the time of the sale Both record a credit to accounts payable at the time of the purchase of merchandise on account

In which of the following ways does a periodic system differ from a perpetual system?

Inventory is not updated until the end of the accounting period in a periodic system Cost of goods sold is not updated until the end of the accounting period in a periodic system

perpetual vs. periodic inventory system

The periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold The perpetual system keeps continual track of inventory balances.

inventory is

a current asset intending to be sold

Walmart sells a bike that cost $100 to a customer for $250 cash. The entry to record the sale includes a debit to _________ and a credit to ________ ___________ for $250. The entry to record the cost of the sale includes a debit to Cost of Goods Sold and a credit to __________ for $100.

cash; sales revenue; inventory

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost. of goods sold. This ratio is used to:

compare one company with another make comparisons over time

cost of goods sold

cost times the quantity sold

in a periodic system, the end-of-period adjustment that adjusts cost of goods sold for the amount in ending inventory requires a _______ to cost of goods sold

credit

In a periodic system, the entry to transfer beginning inventory and purchases into cost of goods sold includes a __.

credit to purchases credit to inventory debit to COGS

Inventory is reported as an

current asset on the balance sheet

-inventory

current asset on the balance sheet available for sale

In a periodic system, the end-of-period adjustment that adjusts the cost of goods sold for the amount into ending inventory requires a __ to cost of goods sold.

debit

under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a....

debit to accounts payable credit to inventory

FOB shipping point

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to ___________.

remain unchanged

sales revenue

selling price times the quantity sold

In a periodic system, for Cost of Goods Sold to be updated, what must occur?

take a physical count of inventory compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale

Ace Electronics uses a perpetual inventory system. On May 1, beginning Inventory was $10,000. On May 3, Ace purchased $3,000 of inventory and sold $1,500 of inventory for $5,000. At the end of business on May 3, the balance in Ace's inventory account was __________.

11,500

Match the description for each part of the purchase discount 2/10, n/30

2- discount percentage 10- days of the credit sale n/30 (net 30) - when the full amount is due

Which company would you invest in?

A company with high gross profit percentage and high sales volume

the operating cycle

A series of activities that the company undertakes to generate sales and ultimately cash

in a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will

Add the transportation costs to its inventory account