CH6 - Accounting for Merchandising Businesses

Question 1

The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and Liabilities and Owner’s Equity sections on the right side.

Answer 1

account form

Question 2

Expenses incurred in the administration or general operations of the business.

Answer 2

administrative expenses (general expenses)

Question 3

The cost that is reported as an expense when merchandise is sold.

Answer 3

cost of merchandise sold

Question 4

A form used by a seller to inform the buyer of the amount the seller proposes to credit to the account receivable due from the buyer.

Answer 4

credit memorandum (credit memo)

Question 5

The amount of time the buyer is allowed in which to pay the seller.

Answer 5

credit period

Question 6

Terms for payment on account by the buyer to the seller.

Answer 6

credit terms

Question 7

A form used by a buyer to inform the seller of the amount the buyer proposes to debit to the account payable due the seller.

Answer 7

debit memorandum (debit memo)

Question 8

Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.

Answer 8

FOB (free on board) destination

Question 9

Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.

Answer 9

FOB (free on board) shipping point

Question 10

Sales minus the cost of merchandise sold.

Answer 10

gross profit

Question 11

Revenues less operating expenses and service department charges for a profit or an investment center.

Answer 11

income from operations (operating income)

Question 12

The amount by which the merchandise for sale, as indicated by the balance of the merchandise inventory account, is larger than the total amount of merchandise counted during the physical inventory.

Answer 12

inventory shrinkage (inventory shortage)

Question 13

A form of income statement that contains several sections, subsections, and subtotals.

Answer 13

multiple-step income statement

Question 14

The process by which a company spends cash, generates revenues, and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.

Answer 14

operating cycle

Question 15

Expenses that cannot be traced directly to operations.

Answer 15

other expense

Question 16

Revenue from sources other than the primary operating activity of a business.

Answer 16

other income

Question 17

The inventory system in which the inventory records do not show the amount available for sale or sold during the period.

Answer 17

periodic inventory system

Question 18

The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.

Answer 18

perpetual inventory system

Question 19

A detailed listing of merchandise on hand.

Answer 19

physical inventory

Question 20

Discounts taken by the buyer for early payment of an invoice.

Answer 20

purchases discounts

Question 21

From the buyer’s perspective, returned merchandise or an adjustment for defective merchandise.

Answer 21

purchases returns and allowances

Question 22

Ratio that measures how effectively a company uses its assets, computed as net sales divided by average total assets.

Answer 22

ratio of sales to assets

Question 23

The form of balance sheet with the Liabilities and Owner’s Equity sections presented below the Assets section.

Answer 23

report form

Question 24

The total amount charged customers for merchandise sold, including cash sales and sales on account.

Answer 24

sales

Question 25

From the seller’s perspective, discounts that a seller may offer the buyer for early payment.

Answer 25

sales discounts

Question 26

Expenses that are incurred directly in the selling of merchandise.

Answer 26

selling expenses

Question 27

A form of income statement in which the total of all expenses is deducted from the total of all revenues.

Answer 27

single-step income statement

Question 28

Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.

Answer 28

trade discounts