Accounting for Merchandising Businesses Quiz topic 5

What is the operating cycle of a merchandising business?

• The process of providing services to customers

• The process of purchasing merchandise and selling it to customers

• The process of generating revenues and receiving cash

• The process of collecting accounts receivable

What is the main difference between the revenue activities of a service business and a merchandising business?

• Service business involves continuous determination of inventory value, while merchandising business involves the adjusting and closing process

• Service business involves recording purchases and sales of merchandise, while merchandising business involves preparing a physical inventory

• Service business involves buying and selling merchandise, while merchandising business involves providing services

• Service business involves providing services to customers, while merchandising business involves the buying and selling of merchandise

What is the purpose of a perpetual inventory system?

• To record the return or allowance of merchandise

• To continuously update the amount of merchandise available for sale and the amount sold in the inventory records

• To prepare a physical inventory at the end of the accounting period

• To determine the cost of merchandise on hand at the end of the accounting period

What are the advantages of using a perpetual inventory system?

• Affordable with computers, scanners, and bar codes on most products

• All of the above

• Provides management controls

• Continuous determination of inventory value

What are the terms for when payments for merchandise are to be made called?

• Credit terms

• Freight terms

• Sales/customer discounts

• Cash discounts

What is the purpose of offering a sales discount to customers?

• All of the above

• To reduce the cost of the merchandise purchased

• To encourage customers to pay their invoice early

• To encourage customers to purchase in volume

What is the main difference between FOB shipping point and FOB destination?

• FOB shipping point means the buyer receives the merchandise, while FOB destination means the seller delivers the merchandise to the buyer

• FOB shipping point means the seller delivers the merchandise to the buyer, while FOB destination means the buyer receives the merchandise

• FOB shipping point means the buyer pays the freight costs, while FOB destination means the seller pays the freight costs

• FOB shipping point means the seller pays the freight costs, while FOB destination means the buyer pays the freight costs

What is the purpose of a trade discount?

• To encourage customers to pay their invoice early

• To encourage customers to purchase in volume

• To reduce the cost of the merchandise purchased

• To actively increase sales

What are the sections included in a multiple-step statement of profit or loss?

• Sales, Gross Profit, Income from Operations, Other Income and Expense

• Cost of Merchandise Sold, Gross Profit, Income from Operations, Other Income and Expense

• Sales, Cost of Merchandise Sold, Gross Profit, Other Income and Expense

• Sales, Cost of Merchandise Sold, Gross Profit, Income from Operations, Other Income and Expense

What is the purpose of the adjusting entry for inventory shrinkage?

• To prepare a physical inventory at the end of the accounting period

• To ensure the balance of Merchandise Inventory agrees with the physical inventory on hand at the end of the period

• To determine the cost of merchandise on hand at the end of the accounting period

• To record the return or allowance of merchandise