Accounting for Merchandise

1The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

• True

• False

Merchandise inventory is classified on the balance sheet as a

• current liability

• current asset

• long-term asset

• long-term liability

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold

• gross profit

• income from operations

• net income

• gross sales

1Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45.  The Pound Co. paid the invoice within the discount period.  What is amount of net sales from the above transactions?

• $25,500

• $26,010

• $24,990

• $16,000

Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

• debit to Sales

• debit to Merchandise Inventory

• credit to Merchandise Inventory

• credit to Accounts Receivable

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

• FOB shipping point

• FOB destination

• FOB n/30

• FOB seller

When the perpetual inventory system is used, the inventory sold is debited to

• Supplies Expense

• Cost of Merchandise Sold

• Merchandise Inventory

• Sales

The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be

• Jan. 1 

  D. Merchandise Inventory 1.500

  K. Cash

  1,500

• Jan. 1 

  D. Office Supplies 1,500

  K. Cash

  1,500

   

• Jan. 1 

  D. Purchases 1,500

  K. Accounts Payable

  1,500

• Jan. 1 

  D. Cash 1,500

  K. Accounts Receivable

  1,500

   

What is the major difference between a periodic and perpetual inventory system?

• Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account.

• Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory.

• Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month

• All of the answers are correct

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

• multiple-step statement

• revenue statement

• report-form statement

• single-step statement