Acct 2121 CHPT 5

Question 1

What are Service Businesses?

Answer 1

Perform services as their primary source of revenue
Such as: hairdressers, restaurants, and nail techs

Question 2

What are Merchandising Businesses?

Answer 2

Merchandisers buy and sell inventory
Such as: grocery store, and clothing stores

Question 3

Merchandiser Revenue?

Answer 3

Generated from the sales of product

Question 4

Merchandiser expenses?

Answer 4

Cost of goods sold, operating expenses

Question 5

Gross profit equation?

Answer 5

sales- cost of goods sold

Question 6

Income (Loss) before income Tax equation?

Answer 6

Gross profit- operating expense

Question 7

Net Income equation?

Answer 7

Income before Income Tax- Income tax expense

Question 8

How to track movement of inventory?

Answer 8

Beginning Inventory+ Purchases- sales =ending inventory ( sales of inventory = Cost of goods sold)

Question 9

Two Inventory systems?

Answer 9

Perpetual inventory system, Periodic inventory system

Question 10

What are perpetual inventory systems?

Answer 10

Detailed records are kept for cost of each purchase and sale, records are updated continuously, physical count is done once per year to adjust perpetual records to actual

Question 11

what are Periodic inventory systems?

Answer 11

Detailed records are NOT kept throughout the period, COGS can only be determined at the end of the period once inventory is counted, (COGS= Actual count- ending inventory)

Question 12

Ending Inventory in perpetual Inventory System Equation?

Answer 12

Beginning Inventory+ Cost of goods purchased= Cost of goods Available for sale - Cost of goods sold ( determined at each sale) = Ending inventory

Question 13

What happens in purchase of Merchandise?

Answer 13

All purchases are recorded in the inventory account, Includes freight and applicable taxes, Less purchase returns, allowances, discounts, can be made for cash or credit

Question 14

What is cost of goods purchased?

Answer 14

total of all costs

Question 15

What are sales taxes?

Answer 15

GST and HST paid does not form part of the cost of goods (as it is refunded to the government), Generally no PST on goods purchased for resale

Question 16

who deals with FOB destination?

Answer 16

ownership transfers once product reaches the buyer’s place of business; Seller pays for shipping

Question 17

Who deals with FOB shipping point?

Answer 17

Ownership transfers once it leaves seller’s place of business; buyer pays for shipping, If buyer pays- ADD to cost of inventory

Question 18

What are Purchase Returns?

Answer 18

A purchaser returns the goods to the seller and receives a cash refund or credit, buyer can choose to keep the merchandise if the seller is willing to give a deduction to purchase price, result in decrease to cost of goods purchased

Question 19

What is a quantity discount?

Answer 19

gives a price reduction according to the volume of the purchase (Not recorded separately- discount price is recorded as cost of purchase)

Question 20

What is a purchase discount?

Answer 20

is offered to encourage early payment of a balance due. ( Ex 2/10, n 30), recorded separately when payment made, Results in a decrease to inventory account

Question 21

What are Adjusting Entry at End of period?

Answer 21

Inventory counts must be done at the end of the period, normally any differences results in less inventory on hand when compared to inventory records, this is often referred to as shrinkage and should be investigated, adjustments for shortages result in a increase to COGS and a decrease to inventory

Question 22

What are sales of merchandise?

Answer 22

Record sales revenue, Record impact on inventory/cost of the sale, when freight is FOB destination, seller records cost of freight as an operating expense

Question 23

What are Sales Discounts/ Returns?

Answer 23

Under ASPE, sales are recorded at their full mount and no estimate of sales returns is made, sales returns are recorded when they occur, Credit can be to a Sales Returns account- a contra account to sales, sales discount are a contra revenue account to sales

Question 24

What two entries are required for sales discounts/ Returns?

Answer 24

recognize the reduction in sales and accounts receivable, recognize the return of the goods to inventory and decrease in cost of goods sold

Question 25

Two types of Statement of income presentation?

Answer 25

Single-step, multiple-step

Question 26

What is a single-step statement of income?

Answer 26

all data classified into two categories revenues and expenses

Question 27

What is a multi-step statement of income?

Answer 27

shows several steps in determining net income or loss

Question 28

Determine Net income with multi step?

Answer 28

Gross profit= Sales - cost of goods sold, Income from operations= gross income - operating expenses, income before income tax= income from operating expenses- non-operating expenses, Net income income before tax income- income tax expenses

Question 29

What are two types of business?

Answer 29

Service Business, Merchandising Business