Fill in the blank: The series of transactions through which a business generates revenue and the related cash receipts from customers is called the _________.

• Operating Cycle

• Investment Cycle

• Financing Cycle

• Depreciation Cycle

Answer explanation

The correct answer is 'Operating Cycle' as it refers to the series of transactions a business undertakes to generate revenue and collect cash from customers, distinguishing it from other cycles like investment or financing.

Which of the following is the correct first step in the operating cycle?

• Sale of merchandise on account

• Collection of the receivables

• Purchase of merchandise

• Payment of expenses

Answer explanation

The operating cycle begins with the purchase of merchandise, which is essential for a business to sell products. This step initiates the cycle, leading to sales, collections, and expense payments.

Match the steps in the operating cycle with their correct order:

• 2

• Third

• 3

• First

• 1

• Second

What is a Merchandising Company? Fill in the blank: These companies purchase their inventories from other business organizations in a ________ condition.

• ready-to-sell

• raw

• unfinished

• damaged

Answer explanation

A Merchandising Company buys products that are already in a ready-to-sell condition, meaning they are fully prepared for retail. This distinguishes them from companies that deal with raw or unfinished goods.

Which of the following are types of Merchandising Companies?

• Retail Company

• Wholesale Company

• Manufacturing Company

• Both A and B

Answer explanation

Merchandising companies include both retail and wholesale companies, as they focus on selling goods. Manufacturing companies, however, produce goods rather than sell them directly, making 'Both A and B' the correct choice.

A Merchandising Company purchases its inventories from other business organizations in a ready-to-sell condition.

• True

• False

Answer explanation

True. A Merchandising Company buys its inventories in a ready-to-sell condition, meaning the products are purchased from suppliers and are ready for resale without further processing.

According to the diagram, what is subtracted from Revenue in a Service Company's Income Statement to calculate Net Income?

• Cost of Goods Sold

• Gross Profit

• Expenses

• Sales

Answer explanation

To calculate Net Income in a Service Company's Income Statement, you subtract Expenses from Revenue. This reflects the costs incurred in running the business, making 'Expenses' the correct choice.

In a Merchandising Company's Income Statement, what is the first item listed?

• Gross Profit

• Sales

• Net Income

• Other Expenses

Answer explanation

In a Merchandising Company's Income Statement, the first item listed is Sales. This represents the total revenue generated from selling goods before any deductions, making it the starting point for calculating gross profit.

Fill in the blank: In a Merchandising Company's Income Statement, Sales minus Cost of Goods Sold equals ________.

• Gross Profit

• Net Sales

• Operating Expenses

• Net Income

Answer explanation

In a Merchandising Company's Income Statement, Gross Profit is calculated by subtracting Cost of Goods Sold from Sales. This represents the profit made before deducting operating expenses.

Both Service Companies and Merchandising Companies calculate Net Income by subtracting expenses from their respective revenues or profits.

• True

• False

Answer explanation

True. Both Service Companies and Merchandising Companies determine Net Income by subtracting their expenses from total revenues, making the statement accurate.