Chapter 13 Exercise Review

Question 1

Explain why a purchase return has to be recorded in the General Journal

Answer 1

Because it is an infrequent, non-cash transaction that cannot be recorded in any of the special journals

Question 2

Explain one benefit of offering sales returns to customers who change their minds

Answer 2

It may encourage greater sales as customers are aware they can return items if they prove to be unsuitable.

Question 3

State reasons why stock may be returned to a supplier

Answer 3

• Damaged/faulty
• Wrong stock ordered/delivered
• Too many items of stock supplied

Question 4

State two other pieces of information that would be necessary to record the return of stock in the stock card

Answer 4

Line of stock returned/Credit note number

Quantity of stock returned

Cost price of each item

Question 5

Suggest two possible reasons for the transaction (Memo in Stock Card showing 1 stock going out)

Answer 5

Drawings of stock by owner

Withdrawal of stock for Advertising

Question 6

Explain how the application of FIFO affects the recording of a sales return in the stock card

Answer 6

FIFO is applied in reverse, so that the last goods to leave the store are assumed to be those that are returned

Question 7

General Journal Entry - Purchase Return:

Answer 7

Creditors Control - 264
Creditor - (business name) - 264
Stock Control - 240
GST Clearing - 24

Question 8

General Journal Entry - Sales Return:

Answer 8

Sales Return - 1400 
GST Clearing - 140
Debtors Control - 1540
Debtor - T.Nicole - 1540
Stock Control - 800 (cost price)
Cost of Sales - 800

Question 9

Narration for Sales Return

Answer 9

2 necklaces returned by customer – damaged (Cr. note 29)

Question 10

Narration for Purchase Return

Answer 10

2 necklaces returned to supplier – damaged (Cr. note 101)

Question 11

Formula for Cost of Sales

Answer 11

Out Column of Stock Card
less
Sales Returns

Question 12

Explain why Sales Returns are reported separately in the income statement

Answer 12

By reporting it separately in the income statement, it provides an indicator of customer satisfaction regarding the quality and suitability of the stock sold

Question 13

State 1 strategy the business could introduce to reduce the number of Sales Returns

Answer 13

• Improve packaging to reduce damage

- Change supplier to improve quality of goods