Merchandising Business Quiz

Which of the following statements about merchandising business is INCORRECT?

• The operating cycle of a service business is shorter compared to that of a merchandising business.

• A merchandising business may adopt either a periodic or perpetual inventory system.

• A merchandising business follows a natural form income statement.

• In order to be classified as inventory, an item must be held for sale in the ordinary course of business.

If a merchandising business follows a periodic inventory system, which account title is used to record acquisition of merchandise?

• Merchandise Inventory

• Sales

• Purchases

• Cost of Sales

Which of the following is FALSE?

• Cash discounts may be offered in conjunction with trade discounts.

• Cash discounts are a convenient way of reducing list prices and invoice prices.

• Cash discounts are used to encourage customers to make prompt payments.

• From the seller’s perspective, the terms cash discount and sales discount are synonymous.

The primary difference between a periodic and perpetual inventory system is that:

• Periodic inventory system is best implemented with a computerized accounting system.

• Perpetual inventory system keeps a record showing the inventory on hand at all times.

• Periodic inventory system records the cost of the sale on the date the sale is made.

• Perpetual inventory system determines the inventory on hand only at the end of the accounting period.

Revenue from the sale of merchandise should be entered in the accounting records at:

• The list price.

• The invoice price minus any trade discount.

• The list price minus any trade discount.

• The invoice price minus any trade discount and any cash discount.

Which of the following statements is FALSE?

• Freight In is debited by the buyer when he pays for the freight of office supplies.

• Trade discount deducted from the list price to obtain the invoice price.

• Cash discount is granted to encourage the buyer to settle his account at the earliest possible time.

• Cash is credited by the seller when the buyer returns defective goods which were bought on COD terms.

Special journals have come into existence primarily because most businesses have transactions that

• Are difficult to classify.

• Fall into new categories.

• Use only a few ledger accounts.

• Are easy to classify.

Which is NOT true concerning the use of special journals?

• All credit sales transactions are recorded in the sales journal.

• All transactions involving receipt of cash are recorded in the cash receipts journal.

• All transactions involving disbursements of cash are recorded in the cash payments journal.

• All purchases on account are recorded in the purchases journal.

Answer explanation

Not sure about this tho

A VAT-registered company purchased merchandise from a non-VAT registered company. The entry in the buyer’s book would

• Involve a debit to Input Tax.

• Involve a debit to Output Tax.

• Involve a credit to Output Tax.

• Not involve a debit to Input Tax.

If the amount of VAT was erroneously recorded in the Purchases account upon the credit purchases of a merchandise which is inclusive of VAT. Then because of this error

• Basics of Purchase Discount is correct.

• Accounts Payable would be overstated.

• There might have been VAT Payable rather than Creditable Input Tax.

• The amount of Creditable Input Tax would have been higher than what was reported.