Ch 4

Question 1

What is inventory classified as on the balance sheet?

Answer 1

Current asset

Question 2

What is referred to as the products the company owns and intends to sell?

Answer 2

Merchandise inventory

Question 3

How is merchandise inventory reported on the balance sheet?

Answer 3

Current asset

Question 4

What does the cost of the merchandise inventory include?

Answer 4

The cost to buy goods, the cost to ship them tothe store, and the cost to make them ready fore sale

Question 5

What do multiple-step income statements show?

Answer 5

Shows both gross profit and income from operations

Question 6

What are net sales?

Answer 6

Sales - sales discounts - sales returns and allowances

Question 7

What are sales returns?

Answer 7

Customers returning merchandise back to the seller for a refund

Question 8

What is gross profit equal to?

Answer 8

Sales - costs of goods sold

Question 9

What is the term used for the expense of buying and preparing merchandise for sale?

Answer 9

Cost of goods sold

Question 10

What are the arrangements between buyer and seller as to when payments for merchandise are to be made called?

Answer 10

Credit terms

Question 11

Who is responsible for the freight costs when the terms are F.O.B. Shipping point?

Answer 11

The buyer

Question 12

Who is responsible for the freight costs when the terms are F.O.B. Destination?

Answer 12

The seller

Question 13

What type of company would normally offer trade discounts to its customers?

Answer 13

Wholesalers

Question 14

The inventory system employing accounting records that continuously disclose the amount of inventory is called…

Answer 14

Perpetual

Question 15

Under the periodic inventory system, the journal entry to record the purchase of inventory will
Include a debit to…

Answer 15

Purchases

Question 16

What is the primary difference between the periodic and perpetual inventory systems?

Answer 16

Periodic system determines the inventory on hand only at the end of the accounting period

Question 17

How do we record the transaction of purchases of merchandise that are made on account with a perpetual inventory system?

Answer 17

Debit inventory, credit accounts payable

Question 18

What are general and administrative expenses?

Answer 18

Expenses that support a company’s overall operations and include expenses related to accounting, Human Resources, and finances

Question 19

What are selling expenses?

Answer 19

Expenses that are incurred directly or entirely in connection with the selling of merchandise

Question 20

Inventory shrinkage is recorded when…

Answer 20

There is a difference between a physical count of inventory and inventory records

Question 21

If the physical count of inventory revealed less inventory on hand than the inventory records reported, the necessary adjusting entry record inventory shrinkage would be…

Answer 21

Debit cost of goods sold, credit inventory

Question 22

What are the 2 journal entries made when inventory is sold in the perpetual method?

Answer 22

1. Debit cash (or accounts receivable), credit sales (revenue account)
2. Debit cost of goods sold ( expense account), credit inventory

Question 23

Assets go down by…

Answer 23

Credits

Question 24

Purchase inventory is _________ to the inventory account

Answer 24

Debited (credit cash)

Question 25

What is the periodic method?

Answer 25

The inventory system that determines the inventory on hand only at the end of the accounting period

Question 26

Is a journal entry recorded at the time of the sale of inventory for the cost of the inventory in the periodic method?

Answer 26

No.

Question 27

What accounts are reconciled at the end of the accounting period in the periodic method?

Answer 27

Purchase returns, allowances, and discounts

Question 28

What account is the purchase inventory debited to in the periodic method?

Answer 28

Debit to the purchases account

Question 29

What is the operating cycle for a merchandiser?

Answer 29

Begins with purchasing merchandise with cash, and ends with collecting cash from selling the merchandise

Question 30

What are credit terms?

Answer 30

Cash discounts offered by seller to purchaser within a specific period of time called the discount period

Question 31

What are cash discounts?

Answer 31

Discounts granted by the seller to encourage buyers to pay the amount the one earlier. Buyers view cash discounts as purchase discounts, sellers view them as sales discounts

Question 32

Gross profit calculation:

Answer 32

Net sales - cost of goods sold

Question 33

Income from operations:

Answer 33

Profit- operating expenses

Question 34

Net income:

Answer 34

Income from operations plus or minus non operating items

Question 35

Non operating activities:

Answer 35

Expenses revenues, losses, and gains that are unrelated to a company’s main operations