Chapter 4

Question 1

Service organizations

Answer 1

Sell time to earn revenue

Question 2

Reporting Ni for service organizations

Answer 2

Rev. - exp. = Ni

Question 3

Merchandising organization

Answer 3

Sell products to earn revenue

Question 4

Reporting Ni for merch-org.

Answer 4

Net sales - cogs = gross profit - expenses = Ni

Question 5

Perpetual systems

Answer 5

Updates accounting records for each purchase and sale of merchandise

Question 6

Periodic systems

Answer 6

Updates records for purchase and sale of merchandise only at the ent of the accounting period

Question 7

Cogs equation

Answer 7

Beg. Inventory + purchases = cogs

Question 8

Credit terms

Answer 8

Deduction from the invoice price granted to induce Early payment of amount due

Question 9

Purchase allowance

Answer 9

Price reduction to the buyer of defective or unacceptable merchandise

Question 10

Purchase return

Answer 10

Merchandise returned

Question 11

Sales of merchandise transaction

Answer 11

Rev. Received in form of an asset from customer
Recognition of cogs to customer

Question 12

Sales discount

Answer 12

Contra revenue

Question 13

Acid test ratio

Answer 13

(Quick assets) cash + short term inv. + receivables/ current liabilities

Question 14

Gross profit margin

Answer 14

Net sales - cogs/net sales