Chapter 7

Calculate: List price of $600 and trade discount of 30%

$420 600 x .30 = 180 (this is the discount) 600-180 = 420

What is a special journal? Give four examples of special journals.

A journal that is used to record only one type of transaction. Examples: sales journal purchases journal cash receipts journal cash payments journal

What is a subsidiary ledger? Give two examples of subsidiary ledgers.

A ledger that contains accounts of a single type. Examples: accounts receivable ledger accounts payable ledger

Why does a small merchandising business usually need a more complex set of financial records and statements than a small service business?

A merchandising business must account for the purchase and sale of goods and for its merchandise inventory

Explain how service, merchandising, and manufacturing businesses differ from each other.

A service business sells services; a merchandising business sells goods that it has purchased for resale; and a manufacturing business sells goods that it has produced.

What is a control account?

An account that serves as a link between a subsidiary ledger and the general ledger because its balance summarizes the balances of the accounts in the subsidiary ledger

Calculate: List price of $2,000 and trade discounts of 30 and 15 percent.

Answer: $1,190 2,000 x .30 = 600 2,000 - 600 = 1,400 1,400 x .15 = 210 1400 - 210 = 1190

A(n) _______ _________ is a business form that is issued to a credit customer upon the acceptance of the return of damaged goods.

Credit memorandum

The Sales Returns and Allowances account has a(n) ____________ balance.

Debit

If I sold merchandise for credit and the transaction involved sales tax, what accounts are debited and credited?

Debit: Accounts Receivable Credit: Sales Tax Payable & Sales

If I sold merchandise for cash and the transaction involved sales tax, what accounts are debited and credited?

Debit: Cash Credit: Sales Tax Payable & Sales

Why is it useful for a firm to have an accounts receivable ledger?

It contains detailed information about the transactions with credit customers and shows the balances owed by credit customers at all times

What is the difference between list price and net price?

List price is the established retail price Net price is the amount left after all trade discounts are subtracted from the list price

What account is used to record sales tax owed by a business to a city or state?

Sales Tax Payable is the account used

Charge-account sales

Sales made through the use of open-account credit or one of various types of credit cards

What type of transaction is recorded in the sales journal?

Sales of merchandise on credit

Where would you find the information you need (which source document) to make an entry into the sales journal?

Sales slip

True or False For a retailer, the bank credit card sales are like cash sales.

True

Wholesale business

a business that manufactures or distributes goods to retail businesses or large consumers such as hotels and hospitals

Retail business

a business that sells directly to the individual consumers

Manufacturing business

a business that sells goods that it has produced

Service business

a business that sells services

Sales return and allowances

a contra revenue account where sales returns and sales allowances are recorded; sales returns and allowances are subtracted from sales to determine net sales

Invoice

a customer billing for merchandise bought on credit

Sales return

a firm's acceptance of a return of goods from a customer

Special journal

a journal used to record only one type of transaction

Subsidiary ledger

a ledger dedicated to accounts of a single type and showing details to support a general ledger account

Schedule of accounts receivable

a listing of all balances of the accounts in the accounts receivable subsidiary ledger

Credit memorandum

a note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus any sales tax that may have been involved

Trade discount

a reduction from list price

Sales allowance

a reduction in the price originally charged to customers for goods or services

Sales journal

a special journal used to record sales of merchandise on credit

Accounts receivable ledger

a subsidiary ledger that contains credit customer accounts

Open-account credit

a system that allows the sale of services or goods with the understanding that payment will be made at a later date

If I wanted to find the balance due from an individual customer, I would look at the ...

accounts receivable subsidiary ledger

Control account

an account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger

Contra revenue account

an account with a debit balance, which is contrary to the normal balance for a revenue account

List price

an established retail price

A company that buys $4,000 of goods from a wholesaler offering trade discounts of 20 and 10 percent will pay what amount for the goods? a. $1,760 b. $2,800 c. $2,880 d. $2,780

c. $2,880

Where would you report net sales? a. sales general ledger account b. general journal c. income statement d. sales journal

c. income statement

If a wholesale business offers a trade discount of 35 percent on a sale of $7,200, what is the amount of the discount? a. $240 b. $252 c. $2,400 d. $2,520

d. $2,520

What are four types of credit sales

open-account credit business credit card bank credit card credit card company

The Sales account is classified as a ________ account.

revenue

After all postings have been made, the total of the schedule of accounts receivable should equal what?

the balance of the Accounts Receivable account

Net sales

the difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account

Net price

the list price less all trade discounts

Name the two different time periods usually covered in sales tax returns

the month and the quarter

Merchandise inventory

the stock of goods a merchandising business keeps on hand