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WorksheetsAccounting for Merchandising Operations
Total questions: 50
Worksheet time: 50mins
The primary source of revenue for a merchandising company is:
Service income
Interest income
Sales revenue
Commission income
Which of the following is used only by merchandising companies, not service companies?
Salaries expense
Gross profit
Depreciation expense
Accounts receivable
The operating cycle of a merchandising company is usually:
Shorter than a service company’s
Longer than a service company’s
The same as a service company’s
Irrelevant to the business type
Under a perpetual inventory system, the cost of goods sold is determined:
At the end of the accounting period only
Every time a sale occurs
Only once per year
When payment is received from the customer
Under a periodic inventory system, the cost of goods sold is determined:
Continuously
By a physical count at the end of the period
When goods are purchased
When goods are shipped
The formula to compute cost of goods sold (COGS) under a periodic system is:
Purchases – Ending Inventory
Beginning Inventory + Purchases – Ending Inventory
Purchases + Ending Inventory
Sales – Gross Profit
In a perpetual system, the Inventory account is debited when:
Goods are sold
Freight is incurred
Goods are purchased and freight costs are paid
Discounts are taken
Freight costs incurred by the buyer are recorded as:
Freight-out
Freight-in
Delivery expense
Sales returns
Freight costs paid by the seller are recorded as:
Freight-out (Delivery Expense)
Freight-in
Purchase allowance
Cost of goods sold
In a perpetual system, when goods are returned by a purchaser, the buyer will:
Debit Purchases
Credit Purchase Returns
Credit Inventory
Debit Accounts Payable
Credit terms “2/10, n/30” mean:
2% discount if paid within 10 days, otherwise full amount due in 30 days
10% discount if paid within 2 days
Net amount due within 10 days
30% discount after 10 days
A sales discount is classified as a:
Revenue account
Contra-revenue account
Asset account
Liability account
The journal entry to record a cash purchase of merchandise is:
Dr. Cash, Cr. Inventory
Dr. Inventory, Cr. Cash
Dr. Purchases, Cr. Accounts Payable
Dr. Accounts Payable, Cr. Inventory
In a perpetual inventory system, the entry to record a sale includes:
One journal entry only
Two journal entries — one for sales revenue and one for cost of goods sold
Three journal entries
None
When goods are sold on account, the seller debits:
Inventory
Sales Revenue
Accounts Receivable
Cost of Goods Sold
The cost of goods sold is recorded:
Only at the end of the year
When goods are purchased
When a sale occurs (perpetual system)
Only after customer payment
A sales return is recorded as a:
Credit to Accounts Receivable
Debit to Sales Returns and Allowances
Debit to Accounts Receivable
Credit to Sales Revenue
In a perpetual system, when defective goods are returned by a customer, the seller should:
Debit Sales Returns and Allowances and Inventory
Debit Accounts Payable and Purchases
Credit Cost of Goods Sold and Inventory
Debit Cost of Goods Sold only
In the seller’s books, a sales return reduces:
Accounts Receivable
Sales Discounts
Purchases
Inventory
The net sales of a company are calculated as:
Sales Revenue – Purchases
Sales Revenue – (Sales Returns + Sales Discounts)
Sales Revenue + Cost of Goods Sold
Sales Revenue – Freight-out
The advantage of the perpetual inventory system is that it:
Is cheaper to maintain
Shows real-time inventory balances
Requires no physical count
Avoids recording sales returns
The account used to record transportation costs on purchases under a periodic system is:
Freight-out
Freight-in (Transportation-in)
Delivery expense
Cost of Goods Sold
The purchase discounts account under a periodic system is a:
Contra-asset account
Contra-liability account
Contra-expense account
Contra-purchases account
In a periodic inventory system, no entry is made for:
Purchases
Freight-in
Cost of goods sold at the time of sale
Sales
The relationship between sales revenue, cost of goods sold, and gross profit is correctly stated as:
Sales Revenue – Cost of Goods Sold = Gross Profit
Cost of Goods Sold – Sales = Gross Profit
The accounting cycle for a merchandising company differs from a service company mainly because it includes:
Revenue recognition
Adjusting entries for depreciation
Inventory-related adjustments
Closing entries for assets
When adjusting inventory at year-end, if physical count is less than the unadjusted balance, the entry includes a:
Debit to Inventory
Credit to Cost of Goods Sold
Debit to Cost of Goods Sold
Credit to Sales Revenue
The primary purpose of adjusting entries is to:
Update cash transactions
Match revenues and expenses in the correct period
Close temporary accounts
Prepare the post-closing trial balance
The correct adjusting entry when inventory decreases from 40,500to 40,000 is:
Dr. Inventory; Cr. Cost of Goods Sold
Dr. Cost of Goods Sold; Cr. Inventory
Dr. Sales; Cr. Inventory
Dr. Inventory; Cr. Sales Revenue
Closing entries are prepared:
Before adjusting entries
After financial statements are completed
Immediately after preparing the trial balance
Before posting adjusting entries
Temporary accounts that must be closed include:
Assets and liabilities
Revenues, expenses, and drawings
Capital and retained earnings
Inventory and equipment
When closing income statement accounts with credit balances, we debit:
Income Summary
Sales Revenue and Rent Revenue
Drawings
Capital
When closing income statement accounts with debit balances, we credit:
Cost of Goods Sold and Expenses
Income Summary
The purpose of closing entries is to:
Carry forward balances of revenue and expense accounts
Transfer net income (or loss) to the owner’s capital
Adjust asset accounts
Prepare the worksheet
The final step in the accounting cycle is to:
Prepare adjusting entries
Post-closing trial balance
Prepare financial statements
Record reversing entries
The multiple-step income statement provides:
A. A simple summary of revenues and expenses
B. Detailed classifications of revenues and expenses
C. Only total net income
D. No operating data
The main advantage of a multiple-step income statement is that it:
Ignores non-operating activities
Groups expenses randomly
Highlights operating versus non-operating results
Excludes gross profit calculation
Which of the following is not shown in a multiple-step income statement?
Sales revenue section
Gross profit
Cost of goods sold
Investing activities section
Non-operating activities include all of the following except:
Interest revenue
Dividend income
Sales returns
Rent revenue
Casualty losses and losses from strikes are classified as:
Operating expenses
Other expenses and losses
Administrative expenses
Selling expenses
The difference between gross profit and income from operations is:
Non-operating items
Sales discounts
Freight-out
Inventory adjustments
A single-step income statement:
Separates operating and non-operating activities
Subtracts total expenses from total revenues in one step
Is more detailed than the multiple-step format
Excludes cost of goods sold
The main advantage of the single-step format is that it:
Emphasizes gross profit
Is easier to prepare and understand
Separates selling from administrative expenses
Distinguishes gains from losses
Comprehensive income includes:
Only revenues and expenses
Both net income and other comprehensive income items
Only cash-based items
Only operating revenues
An example of an item included in comprehensive income but excluded from net income is:
Sales revenue
Dividend income
Unrealized gain on securities
Interest revenue
The classified balance sheet organizes assets and liabilities as:
Current and non-current
Tangible and intangible
Short-term only
Operating and non-operating
The Income Summary account is used to:
Record all adjusting entries
Facilitate closing of temporary accounts
Replace retained earnings
Track revenues throughout the year
In closing entries, the Drawings account is closed to:
A. Capital
B. Income Summary
C. Revenue
D. Expenses
Which of the following would appear under “Other Revenues and Gains”?
Sales returns
Rent revenue from subleasing
Cost of goods sold
Salaries expense
The worksheet for a merchandising company differs from a service company because it includes:
Income Summary column
Inventory and Cost of Goods Sold accounts
Only revenue accounts
Depreciation expense
