Chapter 4-- Summary Cheat Sheet

Question 1

What does merchandise refer to?

Answer 1

Products (aka goods) that a company buys to resell.

Question 2

Who are merchandisers?

Answer 2

Wholesalers or retailers

Question 3

Wholesaler buys from manufacturer and sells to

Answer 3

retailers

Question 4

Retailer buys from manufacturer/wholesaler and sells to

Answer 4

consumers

Question 5

N.I for merchandiser is

Answer 5

revenue from selling merch-cost of merch - other expenses

Question 6

Cost of goods sold refers to

Answer 6

expense of buying and preparing merch

Question 7

To compute net income for service company

Answer 7

revenues- expenses= net income

Question 8

Calculate net income for marchandiser

Answer 8

net sales- cost of goods sold= gross profit- expenses= net income

Question 9

Inventory is the

Answer 9

cost of merchandise owned but not yet sold. It is a current asset on the balance sheet

Question 10

Merchandise cash flows consists of

Answer 10

Net purchases and beginning inventory –> merch available for sale–> cost of goods sold and ending inventory

Question 11

Perceptual inventory system:

Answer 11

updates acc. records for each purchase and each sale of inventory

Question 12

Periodic inventory system:

Answer 12

Updates accounting records for purchases and sales of inventory only at the end of a period

Question 13

Cash discounts ON MERH PURCHASES

Answer 13

Purchases discount on the price paid by the buyer, or sales discount on the amount received for the seller

Question 14

Credit terms example:

Answer 14

“2./10, n/60” means full payment is due within 60 days, but the buyer can deduct 2% of the invoice amount if payment is made within 10 days.

Question 15

Gross method (related to merch purchases)

Answer 15

Initially record purchases at gross (full) invoice amounts

Question 16

MERCH PURCHASING– Entry for purchasing merch on credit

Answer 16

Merch inventory 500
Accounts payable 500

Question 17

MERCH PURCHASING–Entries for paying within discount period (inventory reduced by discount taken)

Answer 17

accounts payable 500
Merchandise Inventory 10
Cash 490

Question 18

MERCH PURCHASING–Entry for paying outside the discount period

Answer 18

Accounts Payable 500
Cash 500

Question 19

MERCH PURCHASING– Entry for recording purchases returns or allowances

Answer 19

Cash or Acc. payable 30
Merchandise Inventory 30

Question 20

Types of shipping terms

Answer 20

FOB shipping point
FOB destination

Question 21

In FOB shipping point, ownership transfers @

Answer 21

Ownership transfers @ shipping point

Question 22

In FOB shipping, goods in transit are owned by

Answer 22

Buyer

Question 23

In FOB shipping point, transportation costs are paid by

Answer 23

Buyer– merch inventory #
Cash #

Question 24

In FOB destination, ownership transfers at

Answer 24

Destination

Question 25

In FOB destination, goods in transit are owned by

Answer 25

seller

Question 26

In FOB destination, transportation costs are paid by

Answer 26

seller-- Delivery expense # Cash #

Question 27

MERCH SALES--Entry for selling merchandise on credit

Answer 27

Accounts receivable 1,000 Sales 1,000 Costs of Goods sold 300 Merchandise Inventory 300

Question 28

MERCH SALES--Entry for receiving payment within discount period

Answer 28

Cash 980 Sales Discounts 20 Accounts Receivable 1,000

Question 29

MERCH SALES-- Entry for receiving payment outside discount period

Answer 29

Cash 1,000 Accounts Receivable 1,000

Question 30

Sales discounts are

Answer 30

A contra revenue account, meaning Sales Discounts is subtracted from Sales when computing net sales

Question 31

Entries for CUSTOMER MERCH. Return-- Receiving sales returns of non-defective inventory

Answer 31

Sales Returns and Allowances 15 Cash or Acc. Receivable 15 Merchandise Inventory 9 Cost of Goods Sold 9

Question 32

Sales allowance is when

Answer 32

A price reduction agreed to when a buyer is unsatisfied with the goods

Question 33

How do you recognize sales allowances

Answer 33

Sales Returns and Allowances 10 Cash or Acc. Receivable 10

Question 34

Inventory Shrinkage:

Answer 34

An adjusting entry to account for the loss of inventory due to theft or deterioration. Computed by comparing a physical count of inventory with recorded amounts

Question 35

MERCH. REPORTING-- Adjustment for shrinkage (occurs when recorded amount larger than physical inventory)

Answer 35

Cost of Goods Sold Merchandise 250 Merchandise Inventory 250

Question 36

Closing entries are

Answer 36

Differences between merchandisers and service companies in red

Question 37

Steps for closing entries

Answer 37

1. Close credit balances in temporary accounts to Income Summary 2. Close Debit Balances in temp. acc. to income summary 3. Close Income Summary ( same entry as for service company) 4. Close Dividends (same entry as for service company)

Question 38

What does closing credit balances in temp. acc. to income summary look like?

Answer 38

Sales 321,000 Income Summary 321,000

Question 39

What does closing debit balances in temp. acc. to income summary look like?

Answer 39

Sales Discounts 4,300 Sales Returns+ allowances 2,000 Cost of Goods Sold 230,400 Other Expenses 71,400

Question 40

Multiple-income statement has how many parts?

Answer 40

three

Question 41

What are the three parts of MULTIPLE-STEP INCOME STATEMENT

Answer 41

1. Gross profit 2, Income form operations, which is gross profit- operating expenses 3. Net income, which is income from operation +/- nonoperating items

Question 42

Operating expenses are

Answer 42

Separated into selling expenses and general & administrative expenses

Question 43

Selling expenses:

Answer 43

Expenses of advertising merch, making sales, and delivering goods to customers

Question 44

General & administrative expenses:

Answer 44

Expenses that support a company's overall operations, including acc. and human resources

Question 45

Nonoperating activities

Answer 45

Consists of expenses, revenues, losses, and gains that are unrelated to a company's main operations